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Decisions should not be taken based solely on the content of this website, individual advice should be taken first. Content is aimed at UK residents.

Bluecoat Wealth Management is an appointed representative of Best Practice IFA Group, which is authorised and regulated by the Financial Conduct Authority (FCA), FCA no. 223112. Registered Office: 11 Lady Bee Enterprise Centre, Albion Street, Southwick BN42 4BW. Registered in England and Wales no. 6828686. The Financial Ombudsman Service (FOS) is available to sort out individual complaints that financial services businesses and their clients are unable to resolve. To contact FOS please visit www.financial-ombudsman.org.uk

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Understanding the Child Benefit Charge

January 17, 2019

 

7th January 2019 marked the fifth anniversary of the tax on child benefits, an imposition that is still not widely understood.

 

The High Income Child Benefit Charge (HICBC), to give child benefit tax its correct name, was introduced in a rush by George Osborne – so much so that it began three months before the start of the 2013/14 tax year. It was, and remains, a classic example of the type of tax system tweaking beloved of Chancellors and disliked by those who have to deal with the consequences.

 

The HICBC represented an attempt to use the income tax system to withdraw child benefit from parent(s) (married or not) where one had income exceeding £50,000. Its introduction was poorly publicised, leaving many people – particularly PAYE earners – unaware of their potential liability. 

 

Caught by ‘failure to notify’?

 

If proof were needed of the flaws in HICBC, it arrived in November 2018. That was when HMRC announced it would be reviewing ‘Failure to Notify” penalties for 2013/14, 2014/15 and 2015/16 “to customers [sic]who did not register for the High Income Child Benefit Charge” and therefore did not pay the HICBC tax. Unusually for HMRC, it is not looking for the taxpayer to provide a “reasonable excuse” before considering a refund. It may be hoping to avoid a flood of letters from those affected. 

 

The income trigger for the HICBC remains at £50,000. That means that for 2019/20 the trigger matches the UK higher rate threshold. When it began, the charge started at over £7,500 above the then higher rate threshold. 

 

The tax is levied in a unique way: for each £100 of income above the threshold, tax is payable equal to 1% of the child benefit received. For example, an income of £56,000 would mean an HICBC of 60% of total child benefit – 60% of £1,789 (=£1,073) for a two child family. 

 

Failure to claim child benefit can mean a loss of national insurance credits, so it’s important to avoid this pitfall. If you or your partner are, or may be, caught by HICBC, there are several planning options to consider, which we would be happy to discuss. 

 

Articles on this website are offered only for general informational and educational purposes. They are not offered as and do not constitute financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional. Past performance is not a guide to future performance and may not be repeated. Capital is at risk; investments and the income from them can fall as well as rise.

 

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