High income child benefit charge

The 2012/13 self-assessment tax return for individuals includes, for the first time, a section in respect of the high income child benefit charge.

The income tax charge on child benefit for high income families came into force on 7 January 2013 and therefore, for the tax year 2012/13, it is applicable to the child benefit entitlement for the period 7 January 2013 to 5 April 2013.

The 2012/13 SA 100 tax return form includes a specific section on page TR5 where the total amount of child benefit received and the number of children for which it was received for the period 7 January 2013 to 5 April 2013 must be entered. Not all taxpayers need to fill in such section as it would only be required of individuals with an adjusted net income in excess of £50,000, where they or their partners (if any) have received child benefit on or after 7 January 2013 and, in case of couples, only of the individual with the highest adjusted income between the partners.

In practice the child benefit charge will be applicable to a single parent with an income in excess of £50,000 and to the individual with the highest personal income in a couple in excess of £50,000. Note that the £50,000 threshold refers to an individual’s adjusted income and not to the cumulative income of a couple, ie the charge will only be triggered if an individual’s income is above £50,000.

Additionally the charge will apply to an individual if someone else claims child benefit for a child who lives with the individual and pays the individual or his/her partner for the upkeep of the child. For the purpose of the charge, a partner is the husband or wife of an individual or a civil partner or a person who lives with the individual as if they were husband or wife or civil partner.

The charge is based on an individual’s adjusted net income. That is an individual’s income, including income from employment, profits from self-employment, taxable social security benefits, pensions, savings, dividend and rental income, adjusted by taking off a number of items, including trading losses for the year, pension contributions paid gross (ie without tax relief) to pension schemes, grossed-up Gift Aid donations and grossed-up pension contributions (ie where the pension provider claims tax relief at basic rate).

The child benefit charge works in such a way as to progressively claw back the amount of child benefit received according to the adjusted net income of an individual. For an adjusted net income between £50,000 and £60,000 the charge is 1% of the child benefit received for every £100 of income above £50,000. Therefore the amount of child benefit received is fully clawed back where an individual’s adjusted net income reaches £60,000.

For example an individual with an adjusted net income of £54,000, who has received a child benefit amount of £438 for two children for the period from 7 January 2013 to 5 April 2013, will suffer a charge of £54,000 - £50,000 = 4,000/100 = 40% x £438 = £175. If the adjusted net income was £60,000 or more the full child benefit would be clawed back, ie £60,000 - £50,000 = 10,000/100 = 100% x £438 = £438. 

ACCA has published Technical Factsheet 178 High Income Child Benefit Charge which provides detailed guidance

HMRC has also published its own guidance.