If you or your partner earns over £50,000 a year and you live together, you may have to pay tax on child benefit. Or not get it at all. It’s called the high income child benefit tax charge. The rules are complicated. Find out how they work and how to make sure you don’t miss out on your state pension.
Child benefit if you earn over £50,000
This child benefit change was brought in at the beginning of January 2013. In my view, it was a really badly thought out policy change. In very simple terms, parents who are high earners have to pay tax on a sliding scale on child benefit they receive. Once one of you earns £60,000 a year or more, the tax is the same as the child benefit you receive. If you earn this much, you should opt out of receiving child benefit.
As I said, it’s a badly thought out policy. Not least, because two parents who each earn £49,000 a year aren’t affected. Whereas a couple where one earns £55,000 a year and the other earns nothing, are. But, as things stand, I don’t see it being abolished.
How are you affected?
This is how you could be affected if either you or your partner earns between £50,000 and £60,000 a year.
- If one of you earns between £50,000 and £60,000 a year, you have a simple choice. You can either continue to receive child benefit and then pay tax on the money you’ve received. Or you can opt out of receiving it. In this case you won’t have to pay tax, but you’ll also miss out on some child benefit.
- If you decide to continue to receive child benefit. There will be a tax charge which is equivalent to 1% of the child benefit rate for every £100 their income is over £50,000.
- If either of you earns more than £60,000 a year. There’s no point in claiming child benefit. This is because you will have to pay tax that equals the amount of child benefit you receive. Instead, you should opt out of receiving it.
SAVVY WARNING: Please note that ‘claiming’ child benefit is not the same as ‘registering’ for it. If you’ve had a baby, you must register for child benefit, even if you both earn more than £60,000. You can register and then opt out of getting the child benefit money. It may seem like a pointless faff, but by registering, you get credits towards your state pension. You get those credits for each year that you are registered for child benefit. And you’re entitled to claim or be registered for child benefit until your youngest child is 12. So it could make a big change to the state pension you get.
The child benefit changes in more detail
Households where one partner earns more than £50,000 don’t get to keep the full rate of child benefit. The more they earn over £50,000 the more they’ll have to pay in tax. Once one partner earns £60,000 a year or more, they aren’t entitled to child benefit. So they should opt out of getting it.
SAVVY TIP: Child benefit is currently £20.70 a week for the first child and £13.70 a week for subsequent children (tax year 2019-20). This works out at £1,076.40 a year for the first child and £712.40 for each subsequent child. A family with two children would receive £1,788.80 a year.
- If one partner earns over £50,000 a year. There will be a tax charge which is equivalent to 1% of the child benefit you receive for every £100 that your income is over £50,000.
SAVVY TIP: To make this policy even more confusing, the £50,000 threshold doesn’t apply to all your income. The tax term for it is ‘net adjusted income’. This is likely to be less than your annual salary or income. I’ve taken some time to explain this below because it’s not a term many people are likely to have heard of.
- Whoever earns £50,000 or over has to pay the tax charge by filling in a self assessment tax return form. If both of you earn more than £50,000, it’s the one who earns the most who has to pay the tax charge.
- If one partner earns more than £60,000 a year they will pay the same tax charge as the full rate of child benefit. As I’ve explained above, it’s easier just to opt out of getting child benefit if this is the case.
- If you need to pay the high income child benefit tax, you must fill in a self-assessment tax form. If you don’t already fill in a self-assessment form online, the person who pays the tax relating to child must register a week or 10 days before the 31st January deadline.
SAVVY TIP: There are details about how you can register for self-assessment on the GOV.UK website and there’s information about what counts as income for the £50,000 threshold later in this article. It’s important because it’s not the same as your salary.
How to choose what to do
If you live with your partner/husband/wife and one of you earns £50,000 or more, the options are:
1. For the person who earns £50,000 or more to pay tax equal to the child benefit clawback and for child benefit to be paid.
SAVVY TIP: If the highest earner earns between £50,000 and £60,000, you will always pay less in tax than you’ll receive in child benefit. So it’s worth paying the tax charge, rather than opting out of getting child benefit.
2. For the person receiving child benefit to choose not to receive it. This is something that couples where one person earns £60,000 or more may opt to do. That’s because the ‘tax charge’ that you pay on child benefit is the same as the child benefit you receive once one partner in the household earns £60,000 or more.
SAVVY TIP: It’s important to register for child benefit in the first place (i.e. when your child is born). Even if you or your partner earn £60,000 a year or more and you decide you’d rather not receive the payment than fill in a self assessment form. That’s because registering for child benefit means you will get National Insurance credits towards your state pension if you don’t work but bring up your children.
Who will have to pay the tax charge?
The income tax charge can be paid to anyone who:
- Earns over £50,000 and receives child benefit. However, it’s worth being aware that even if you or your partner earns £50,000 a year or more, there are certain things you can offset against your earnings, which I explain a little later in this article.
SAVVY TIP: If both of you earn more than £50,000 a year, the one who earns the most will pay the tax charge. You don’t have to pay two lots of income tax charge.
- Earns over £50,000 and whose partner receives child benefit
SAVVY TIP: If, for example, your partner earns more than £50,000 a year and you receive child benefit, your partner would only have to pay the higher tax charge while you still live together.
What is your adjusted net income?
The salary levels used to determine child benefit tax charges are what’s called your adjusted net income, which may be less than your salary. Your adjusted net income is calculated by using your earnings and taking off:
- Donations to charity through Gift Aid.
- Pension contributions paid before tax relief.
- Pension contributions where your pension provider has already given you tax relief at the basic rate (as happens with private pensions).
SAVVY TIP: HM Revenue and Customs has information about how to work out your adjusted net income on the Gov.uk website.
Child benefit and your state pension
Every week that you receive child benefit, up until your child’s 12th birthday, you receive National Insurance credits for your state pension. If you’re registered to receive child benefit it protects your entitlement to the state pension. This means that if you’re a new mum you must register for child benefit even if you or your partner earns £60,000 or more and so you wouldn’t get a payment.
Useful links: There’s useful information on the Gov.uk website about the child benefit changes:
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