From January 2013, child benefit will no longer be universally available. Affected families are encouraged to consider whether they can limit the impact.
The much publicised removal of child benefit from some higher earning families is set to take place from 7 January 2013. The process will involve a tax charge on the highest earner in the family. This charge will apply to families where at least one taxpayer earns more than £50,000 per annum and child benefit is claimed for one or more children.
For the purposes of these rules, a ‘family’ constitutes adults who are married or are civil partners, or are living as though they were married or in a civil partnership, together with any children who qualify for child benefit (whether or not the children are biological offspring).
How the charge will work
- Families where the highest earner has income greater than £60,000 per annum will have a tax charge equal to the child benefit received. These families can opt not to receive the child benefit and not suffer the tax charge.
- Families where the highest earner has income between £50,000 and £60,000 will suffer the tax charge at a rate of 1% of the child benefit received for every £100 of income over the £50,000 limit.
The tax charge will always be levied on the higher earner, even where both partners earn above £50,000 and the lower earner is the individual claiming the child benefit. The collection of the tax due as a result of the child benefit charge will be made through the self-assessment system, potentially resulting in an additional 500,000 people completing an annual tax return.
An opportunity exists for individuals caught by the new rules to reduce their income by increasing pension contributions and charitable gifts. Please seek advice from a member of our Private Client Group or your usual Chantrey Vellacott DFK contact.