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The high income child benefit tax charge is a unique tax, in that it seeks to claw back a state benefit, namely child benefit through the self-assessment tax system.

This tax applies where one of the parents/guardians has income in a tax year of more than £50,000. The charge has proved controversial and unpopular, mainly for two reasons:  

  • it has been perceived as unfair against single parent families
  • it has had the effect of bringing many taxpayers into self-assessment who would not otherwise need to fall within the regime.

The high income child benefit charge applies where: 

  • the individual or their partner were entitled to receive child benefit
  • one member of the household has income of more than £50,000 per annum. It should be noted that the rule only considers the level of income of the higher earner and not total income of the household. Therefore, if a couple earn £49,999 each, the charge will not arise.

Income for these purposes is ‘adjusted net income’, ie income from all sources less losses, pension contributions and gift aid contributions but before personal allowances.

The amount of the charge will be 1% of the amount of child benefit received for every £100 of your income above £50,000. If the individual’s income is more than £60,000, the amount of the charge will be the same as the amount of child benefit the household gets.

As an alternative to paying the charge, individuals may instead choose to disclaim the child benefit.

Example

Simon and Katherine are a couple with two children aged 14 and 16. Simon earns £54,000 a year. They get £1,752.40 child benefit a year (£20.30 for the eldest child plus £13.40 for the second child = £33.70 x 52 = £1,752.40)

As Simon earns £4,000 over the £50,000 threshold, his extra tax will be equivalent to 40% of the total child benefit they get (£54,000- £50,000 = 4,000 divided by 100 = 40%).

This means that while they will continue to get child benefit of £1,752, Simon will need to complete a tax return and have to pay extra tax of £700 for that tax year. This is 40% of £1,752.

Article contributed by ACCA In Practice