Changes to Child Benefit
As you might have seen in the news, the government has introduced changes to who is eligible to receive Child Benefit, taking effect from 7th January 2013. If you or your partner earn over £50,000, the amount of Child Benefit you are eligible for will be reduced – and if one of you earns over £60,000 you will not be eligible to receive any Child Benefit. Those who are earning between £50,000 and £60,000 will have a choice to make before 7th January, since they can still keep some of the Child Benefit they are used to. You can either:
- Opt out of Child Benefit, and stop receiving it from 7th January 2012
- Choose to continue receiving Child Benefit, but pay a “High Income Charge” as an extra tax, effectively reducing their net Child Benefit. To do this, they must register for Self Assessment and complete a tax return each year
If you choose option 2, you will receive the same amount of Child Benefit as you currently do – but you will have to complete a tax return at the end of the tax year, and HMRC will levy an additional tax of some (or all) of the Child Benefit you received. This so-called “High Income Charge” is calculated as a proportion of where your total income comes between the £50,000 and £60,000 thresholds – e.g., if your income is £55,000, you will have to pay back 50% of the Child Benefit you receive. The income used is your “adjusted net income”, which is not simply your salary – you must add to this any additional income like interest paid on savings, and deduct eligible pension contributions. When you complete a tax return through Self Assessment, HMRC will work out your adjusted net income and the proportion of Child Benefit that you must repay. The High Income Charge will never be more than the Child Benefit you or your partner received. More information is available on HMRC’s High Income Child Benefit Charge page.
If you find yourself in the £50,000 – £60,000 income band, you have a limited amount of time to decide whether you are going to give up Child Benefit or register for Self Assessment (if you haven’t already) and pay the High Income Charge. To help you understand better how this will affect you, there is a government tool you can use to help decide what to do, which will guide you through the relevant points to consider.
None of the content on this website, including blog posts, comments, or responses to user comments, is offered as financial advice. Figures used are for illustrative purposes only.
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