With many employees and the self-employed being furloughed, being made redundant, or making lower profits, their income for 2020/21 may well fall below the £50,000 limit at which child benefit starts being taxed.
What is the charge
The charge is 1% for every £100 that adjusted net income exceeds £50,000 multiplied by the child benefit claimed in respect of the children. Note that the rate of Child benefit increased from 6 April to £21.05 a week for the eldest child and £13.95 for each additional child.
Many couples with income over £60,000, when the benefit is fully taxed stopped, claiming Child Benefit rather than have to repay it back in tax. They should therefore reinstate their claims if the income of the higher paid taxpayer could drop back below £60,000.
What is the High Income Child Benefit Charge
The High Income Child Benefit Charge (HICBC) is a tax charge paid by higher earners which claws back up to 100% of any child benefit received by a higher earner or their partner. The HICBC is only payable when the income of the child benefit claimant or their partner exceeds £50,000 p.a.
In order to avoid means-testing all households in receipt of child benefit, the charge is calculated based solely on the income of the higher-earner in a couple – regardless of who actually receives the benefit, the level of income of the lower-earner or indeed whose child the benefit payments are in respect of.
A ‘couple’ for this purpose includes two people who are living together as if they are married or in a civil partnership, as well as those who are actually married or in a civil partnership (unless separated).
For further information please contact our expert tax team at Alan Patient & Co