Parents hit by unexpected Child Benefit Tax Charge
Parents are being warned to be aware of their responsibilities around the High Income Child Benefit Tax Charge, as HMRC almost doubles compliance checks and issues unexpected tax bills in 96% of cases.
The High Income Child Benefit Tax Charge was introduced in 2013 and levies a tax on individuals earning over £50,000 while they or their partner are claiming Child Benefit. Since its introduction, parents have paid over £2.5 billion under the scheme, and more than half a million families have opted out of receiving Child Benefit to avoid complex rules around the Charge.
The Tax Charge applies whether or not the children living with you are your own. In cases where both partners have individual incomes of more than £50,000, the partner with the higher income is responsible for completing a Self Assessment (even if usually paid and taxed through PAYE) and paying the Tax Charge.
Many parents are unaware of their responsibilities under the scheme, particularly when circumstances change, such as pay rises, promotions and moving in with new partners.
Income is assessed after pension contributions are taken into account, so if you find yourself around the threshold and want to be sure not to fall foul of HMRC regulations, it may be worthwhile to reduce your income under the £50,000 threshold by increasing your pension contributions as one consideration.
With our team of specialist financial planners, this is one of the many areas where we can help, by looking at the full picture. This allows you to put in place financial arrangements to help your family thrive now and in the future, and avoid painful unexpected tax bills. Why not get in touch for a free no obligation consultation on how we can help your family build a firm financial foundation?