Changes to Child Benefit
You may be aware from recent press coverage of the changes to Child Benefit rules which are due to take effect from Monday 7 January 2013. While the changes may not apply to you, it may apply to someone within your extended family.
Currently an individual is entitled to claim Child Benefit if they have a child or children under the age of 16, or under the age of 20 if still in full time education. A claim can be made regardless of the level of income applying to the household.
The change to the rules now ties Child Benefit into income and a Child Benefit income tax charge has been introduced. People who will be affected are those whose income is more than £50,000. Income includes earnings, benefits provided by an employer e.g. car, investment income and rental income.
HMRC is in the process of issuing letters to people who may be involved but they are writing to those who are likely to be earning more than £50,000 rather than those who are in receipt of child benefit.
If you or your partner is in receipt of Child Benefit, the individual whose income is more than £50,000 will be subject to the charge. The charge will claw back the benefit at the rate of 1% for every £100 of income which exceeds the £50,000 threshold. If income reaches £60,000 the charge will claw back all the Benefit.
The charge will be collected from the high earner regardless of who receives the Child Benefit. A Self Assessment tax return will need to be completed by the high earner and the charge will usually be collected through an adjustment in the tax code.
Annual monitoring will become important for those whose income is around the threshold as claims can be reinstated if the conditions are satisfied.
The actual benefit payments will continue to be made. It may be more convenient to stop receiving the benefit payments altogether, in which case there will be no charge. However, a child benefit application should still be completed if you have more children as, by doing so, you will continue to qualify for National Insurance credits which in turn have an impact on your State Pension entitlement.
As is often the case, what was intended to be a simple amendment to existing rules, has created a number of anomalies with the result that each case needs to be considered individually.
It may be possible to reduce the high earner’s income below the £50,000 threshold, by making more Gift Aid payments or putting more into their pension scheme.
