Question: What is the High Income Child Benefit Charge, and how does it affect me?
Answer:
The High Income Child Benefit Charge (HICBC) is a tax you may need to pay if either you or your partner earns over £50,000 ( Tax year 23/24) per year and you or your partner are receiving Child Benefit. If someone else receives Child Benefit for a child living with you and contributes towards their upkeep, you could also be affected by this charge.
Even if the child is not biologically yours, you are still responsible for the charge if the child lives with you and these conditions apply.
Question: What is considered “income” for this charge?
Answer:
To determine if your income exceeds the threshold (£50,000), you need to calculate your ‘adjusted net income.’ This includes your total taxable income before any deductions, such as pension contributions or donations made under Gift Aid. It also accounts for interest from savings, investments, and dividends.
Question: Who is responsible for paying the tax charge in a household?
Answer:
If (both) you and your partner earn over £50,000, the person with the higher income is responsible for paying the tax charge. By “partner,” we mean someone you are married to, in a civil partnership with, or living with as if you were married (but not permanently separated).
Question: What are my options if my income is over the threshold?
Answer:
You have two options:
1. Continue receiving Child Benefits and pay the tax charge at the end of each tax year.
2. Opt out of receiving Child Benefits so that you won’t have to pay the tax charge.
How is the High Income Child Benefit Charge (HICBC) is Calculated
The High Income Child Benefit Charge (HICBC) is applied if you or your partner’s adjusted net income exceeds £50,000 and you’re receiving Child Benefit. The charge increases gradually as your income rises, and once your income reaches £60,000 or more, the full amount of Child Benefit received will be reclaimed via the charge.
Steps to Calculate the Charge:
- Identify Adjusted Net Income:
The first step is to determine your “adjusted net income,” which is your total taxable income (from employment, savings, dividends, etc.), minus certain tax reliefs like pension contributions and Gift Aid donations. - Check the Income Threshold:
If your adjusted net income exceeds £50,000, the HICBC applies. - Calculate the Percentage of the Charge:
For every £100 your adjusted net income is above £50,000, you will be charged 1% of the Child Benefit amount.- Example: If your adjusted net income is £55,000, you’ll pay 50% of the Child Benefit amount received.
- If your income reaches £60,000 or more, the charge will equal 100% of the Child Benefit, effectively reclaiming the full amount.
- Apply the Charge:
The charge is calculated based on the Child Benefit received for the tax year. If you’re responsible for the charge, it will be payable via Self Assessment at the end of the tax year.
Example Calculation:
If you receive £1,800 in Child Benefit annually and your adjusted net income is £57,000, the charge will be 70% of £1,800, resulting in a tax charge of £1,260.
Client Question: What happens if I choose to opt out of receiving Child Benefit?
Answer:
Even if you opt out of receiving Child Benefit payments, it’s important to still fill in the Child Benefit claim form. This is because:
– You’ll still earn National Insurance credits, which count towards your State Pension.
– Your child will receive their National Insurance number automatically before they turn 16, without needing to apply for one.
Question: How do I pay the High Income Child Benefit Charge?
Answer:
To pay the charge, you’ll need to:
1. Register for Self Assessment if you’re not already filing a tax return. The deadline to register is 5 October following the end of the tax year for which the charge applies.
2. File a Self Assessment tax return each year and pay what you owe based on your income and Child Benefit received.
If you miss the registration or filing deadlines, you could face penalties.
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