From this month, some basic-rate taxpayers in England, Wales and Northern Ireland will, for the first time, have to pay tax on their child benefit. That’s because although the threshold for paying higher-rate tax is rising to £50,270 a year, the threshold at which child benefit tax begins remains frozen at £50,000. Parents with incomes between those two amounts will pay basic-rate tax, but some of their child benefit will also be taxed.
When the Child Benefit High Income Tax Charge was introduced in 2013, the £50,000 threshold was well above the income at which higher rate tax began. But the point at which higher-rate tax is due has risen with inflation, and from this month the child benefit tax threshold is below the point where higher-rate tax kicks in.
The tax charge applies to individuals whose income exceeds £50,000 if they or their partner get child benefit. This year, basic-rate taxpayers with an income of £50,270 will pay extra tax of 2% of their child benefit – £21 a year for one child, rising to £65 a year for four. The percentage charge rises with income (1% for every £100 of income between £50,000 and £60,000). Beyond that, the charge is 100%, effectively wiping out the child benefit.
The charge applies to an individual or their partner. A single mum on £30,000 earns too little to pay it. But if her boyfriend moves in and he earns over £50,000 he will have to pay the charge. That applies even if he is not the father of the children (an absent parent has no liability for the charge).
A couple with a joint income of £100,000 shared equally pays no charge. But if one earns £60,000 and the other £40,000 then the tax on the higher earner wipes out the child benefit. The higher-paid partner must register for self-assessment to pay the charge. Alternatively the child benefit can be given up. But parents should register to keep their rights to National Insurance credits, which come with getting child benefit for a child under 12.
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For more information, search gov.uk for “child benefit tax”.
Paul Lewis presents Money Box on Radio 4
QUESTIONS? Send any questions to Paul.Lewis@radiotimes.com Paul cannot answer you personally, but try to will reflect them in this column in Radio Times magazine.