The high-income child benefit charge effectively claws back child benefit that has been paid where either the recipient or his or her partner has individual income in excess of £50,000. The person paying the charge may not be the recipient – or even a parent of the child.
Not your child?
You can still be liable for the high-income child benefit charge even if you do not receive child benefit and the child in respect of whom it is paid is not your child – the charge will bite if you live with the child and you contribute at least an equal amount to the child’s upkeep.
Income measure
The income threshold at which the high-income child benefit charge kicks in is £50,000. For these purposes, the measure of income is known as `adjusted net income’. Adjusted net income is total taxable income before personal allowance and less certain tax reliefs, such as trading losses, donations to charity made through gift aid and pension contributions.
See www.gov.uk/guidance/adjusted-net-income for details of how to work out your adjusted net income.
Nature of the charge
The charge is set at 1% of the child benefit received in the tax year for every £100 by which adjusted net income exceeds £50,000. Once income reaches £60,000, the charge is equal to 100% of the child benefit for the tax year.
Example 1: Adjusted net income £90,000
Lucy and Will are married and have two children. Lucy is a stay-at-home mother and Will works in IT.
In 2015/16 Will had adjusted net income of £90,000. Lucy received child benefit of £1,788.80 (£20.70 per week for the eldest child and £13.55 per week for the youngest child).
As Will’s adjusted net income is more than £60,000 he is liable to the high income child benefit charge. The charge is equal to 100% of the child benefit paid in the year, i.e. £1,7888.80.
Example 2: Adjusted net income £52,000
Helen is a single parent. She has one child and in 2015/16 she received child benefit of £1,076.40. Her adjusted net income for the year was £52,000.
As her income exceeds £50,000, she is liable for the high-income child benefit charge. The charge is equal to 1% of the child benefit for each £100 by which her income exceeds £50,000. Consequently, the charge is equal to 20% of her child benefit ((£52,000 - £50,000)/£100) x 1%).
The charge is therefore £215.28 (£1,076.40 @ 20%).
Example 3: Who is liable?
Richard and Usha live together and are not married. They have three children together in respect of which Usha received child benefit of £2,501.20 in 2015/16. For that year, Usha had adjusted net income of £55,000 and Richard had adjusted net income of £66,000.
Although they both have income in excess of £50,000 and regardless of the fact that the child benefit is paid to Usha, Richard is liable to the charge. As his income exceeds £60,000, the charge is equal to 100% of the child benefit paid in the year, i.e. £2,501.20.
Example 4: Living together
Maria has a daughter in respect of whom she received child benefit of £1,076.40 in 2015/16. Her adjusted net income for the year was £20,000.
Maria moved in with her new partner Clive on 5 January 2016. He contributes to the costs of raising Maria’s daughter. His adjusted net income for the year was £80,000.
Although Clive is not Maria’s father, he is liable for the high-income child benefit charge, but only for the period for which he was living with Maria and her daughter. As his income is more than £60,000, the charge is 100% of the child benefit, proportionately reduced for the period during which he did not live with child. The charge is therefore £269.10 (£1,076.40 x 3/12).
Paying the charge
The charge is paid via the self-assessment system and is due by 31 January after the end of the tax year to which it relates.
Disclaiming the benefit
If the prospect of being paid child benefit only to have to pay it back to HMRC does not appeal, you can opt to have your child benefit payments stopped instead. This can be done by contacting the child benefit helpline on 0300 200 3600. Once stopped, payment can be restarted by contacting the child benefit helpline or completing the online form.
Practical Tip:
Consider whether you are likely to be affected by the high-income child benefit charge and if so whether you would prefer not to receive the benefit in the first place. Where possible, couples should equalise income to retain as much child benefit as possible. Live in partners who are not a parent of the child will not be hit by the charge if they can show that they do not contribute equally to the costs. Parents who do not live with the child are unaffected by the charge, regardless of their income.
