If you or your partner get Child Benefit, keep the High Income Child Benefit charge (HICBC) in mind.
High income for these purposes is lower than you might think. The charge applies if you,
or your partner, individually have an income of more than £50,000, and
- you or your partner get Child Benefit, or
- someone else gets Child Benefits for a child living with you, and they contribute at least an equal amount towards the child’s upkeep.
The charge applies regardless of whether the child living with you is your child, or not. Note, too, that for the HICBC, partner does not just mean spouse or civil partner, but includes someone you living with as if you were married.
The threshold to watch is what is called ʻadjusted net incomeʼ. This is taxable income after deducting Gift Aid payments and pension contributions but including interest from savings and dividends. If both you and your partner, have income over the £50,000 threshold, the one with the higher income is responsible for paying HICBC.
The HICBC claws back Child Benefit at a rate of 1% for every £100 of income between £50,000 and £60,000. By the time income reaches £60,000, all Child Benefit payment is effectively lost. You can disclaim the actual Child Benefit payments, so you donʼt pay the charge.
The danger zone
What takes many people unawares is that it is your responsibility to tell HMRC if your income is over the HICBC limit, making you liable for the charge. What’s more, there are time limits involved. If you donʼt already submit a self-assessment tax return, you need to tell HMRC within six months of the end of the tax year: that by 5 October of the following tax year. If liable to HICBC, you need to file a self-assessment tax return each year – even if you are an employee and usually pay tax through PAYE.
Many people are also taken aback by the fact that if you donʼt tell HMRC within the relevant timescale, it can charge a penalty for non-notification. This is worked out with reference to what is called the potential lost revenue, and hinges on two factors: whether it considers your behaviour was deliberate or not; and whether it gets the information because it has ʻpromptedʼ you, or you provided it voluntarily.
Where couples keep their financial affairs separate, the stakes can increase. It is not unusual to find that someone is faced with a demand for HICBC for a run of years, plus failure to notify penalties when they werenʼt even aware that their partner was claiming Child Benefit. This happened to taxpayer, Mr Ashe, who got a ʻnudgeʼ letter from HMRC, telling him to check whether he ought to pay the charge – eight years after he had started living with his partner. He simply hadnʼt known that his partner claimed for her two children. In Mr Asheʼs case, HMRC raised an assessment for more than £4,000 for HICBC and just over £300 in penalties. Fortunately, on this occasion, all the penalties were
Working with you
The HICBC is set to impact more couples than ever before, as wages rise with inflation, while the HICBC income limit remains fixed. High Income Child Benefit Charge: Overview – GOV.UK (www.gov.uk)
Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.