Child Benefit: Income Tax Charge for Those on Higher Incomes

The policy to withdraw Child Benefit from higher rate taxpayers was set out in the Spending Review 2010, but it was not until the 2012 Budget that the mechanism was made clear. Child Benefit will continue to be paid as a universal benefit and will not be made taxable.

Instead, there will be an income tax charge which equates to 1% of Child Benefit for every £100 of income that exceeds £50,000. A taxpayer whose income exceeds £60,000 will be liable to the charge on the full amount of Child Benefit.

For example Child Benefit for two children is £1,789. For a taxpayer whose income is £54,000, the charge will be £715.60 (£17.89 x 40). For a taxpayer whose income is £62,000, the charge will be £1,789.

The charge will apply to taxpayers who receive Child Benefit themselves or whose partner receives Child Benefit. The charge will apply only to taxpayers whose income is more than £50,000 for the tax year. If both partners have income of more than £50,000 for the tax year, the charge will apply only to the partner with the higher income.

Another person is regarded as your partner if you are:

• a married couple living together
• civil partners living together
• a man and a woman who are not married to each other but who are living together
• a man living with a man or a woman living with a woman who are living together as if they were civil partners.

The charge is collected through PAYE or self assessment. Child Benefit claimants will be able to decide not to receive the benefit if they or their partners do not wish to pay the new charge.