Does it affect me?
If you earn over £50,000 and you or your partner are receiving child benefit you need to register for self assessment.
How does it work?
For those affected benefit payments will continue to be paid in full to the claimant, but will be clawed back by way of a tax charge on the household's highest earner if their personal taxable income exceeds £50,000 per tax year. This means:
- Once taxable income exceeds £60,000 in a tax year, the charge will be 100% of the benefit claimed i.e. the value of the benefit is wiped out. For example a family with 2 children could see their annual spendable income drop by up to £1,752 pa in 2013/14; those with 3 children could lose £2,449 pa.
- For incomes between £50,000 and £60,000, the tax charge is 1% for every £100 income exceeds the £50,000 threshold. People in this category will be better off overall as the tax charge will always be less than the benefit claimed; however some planning could improve the position further.
- For the 2012/13 tax year, the tax charge will never exceed 25% of the yearly benefit claimed as the tax charge will only have been operational for one quarter of the current tax year. So, the tax will be limited to £438 where benefit is being claimed for 2 children; £612 for 3 children.
What can I do?
The charge came into force on 7 January 2013 and therefore it is too late to make any planning around the 2012/13 tax year; however this tax charge is here to stay and doing some planning now could ensure that the affects upon your finances are reduced or eliminated.
At Morton Fraser we provide independent and unbiased legal, tax and financial advice on a range of issues including tax planning and mitigation.