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21st January 2019

How to Avoid Child Benefit Tax Trap

There are ways you can avoid a child benefit tax trap if you know how.

Avoid Child Benefit Tax

Deciding if the “high income child benefit charge” (HICBC) applies to you can be difficult.

Thousands of individuals who were liable to pay the charge without realising it have been hit for penalties.

If you or your partner receive child benefit and one or both of you has adjusted net income of £50,000, the one with the highest income must pay the high income child benefit charge.

This can apply even if you aren’t married or in a civil partnership. The HICBC is equal to 1% of the amount of the child benefit for every £100 income over £50,000. So when your or your partner’s income reaches £60,000, the charge will claw back all the child benefit.

It’s up to person liable to the HICBC to tell HMRC. Failure to do so can result in a penalty. It’s not necessarily the person receiving child benefit who is liable for the charge. So if you run you finances separately you won’t know if it’s you or they who should be paying.

If you know all the child benefit will be clawed back by the HICBC you can choose not to receive it. This avoids the hassle of notifying HMRC and paying the charge.

If you elect not to receive child benefit because the HICBC will claw it back but your circumstances change meaning the full charge won’t apply, you can cancel the election and retrospectively claim the child benefit. You must do this within two years.

If you’re liable to the HICBC you have to complete a tax return to declare it, even if you pay all your tax through PAYE. This means if you don’t usually complete tax returns and become liable to pay the HICBC for the first time you’ll need to register for self assessment by 5 October following the end of the tax year in which you’re first liable.

A further way to avoid any Child Benefit tax trap is to reduce or eliminate it by reducing your adjusted net income to below £60,000. A way to do this is by making extra pension or gift aid payments.

See how we can help your with your tax affairs.

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