The High Income Child Benefit Charge (HICBC) starts on 7 January 2013. The new charge will be imposed if a taxpayer’s, or their partner’s, income is more than £50,000 in a tax year, where they or their partner are in receipt of the child benefit.
Taxpayers earning more than £60,000 and in receipt of child benefit only have until 6 January 2013 to opt out of receiving the benefit, to prevent the benefit from being clawed back at the end of the tax year.
Taxpayers with income of more than £60,000, will incur a tax charge of 100% of the amount of Child Benefit. Those with income between £50,000 and £60,000 will incur a proportionate charge.
It is therefore now the time to decide whether to keep receiving Child Benefit and pay the charge through Self Assessment, or stop receiving Child Benefit and avoid the later charge. Care should be taken, however, as receipt of Child Benefit can currently be used to determine qualifying years for the state pension for those taking time out of work to bring up children.
In addition, if income is less than £60,000, the tax charge will always be less than the amount of Child Benefit, so a couple could lose money to which they are entitled if they choose to stop receiving Child Benefit and their income dips below the £60,000 mark.
If you keep receiving Child Benefit and you or your partner earn over £50,000 then you should lay plans of how to pay the benefit back and make sure that you file a tax return for the year in question.