The receipt of Child Benefit can result in a tax bill. This potential bill brings the
Child Benefit into the scope of self assessment and, if you live in the Dartford
area we, at Kelley & Lowe Limited, can advise you on the potential application of
the Child Benefit Charge and possible tax planning that may be appropriate to remove
the Child Benefit Charge.
The High Income Child Benefit Charge is a charge paid by a taxpayer who has income over
£60,000 (for 2025/26 and 2024/25) in a tax year and either they or their partner
have received Child Benefit for the year.
We set out below the main points of the charge and illustrate some of the practical
issues.
Does this affect my family?
The High Income Child Benefit Charge is payable by a taxpayer who has 'adjusted net
income' (explained later) in excess of £60,000 where either they or their partner,
if they have one, are in receipt of Child Benefit. Where there is a partner and both
partners have adjusted net income in excess of £60,000 the charge applies to the
partner with the higher income.
Note that partner does not just include spouses or civil partners but also anyone you
live with as if you were spouses/civil partners.
Practical issues
Some couples with fluctuating income levels may find that they are caught by the charge
or perhaps that the partner who usually has the highest income does not actually end up
paying the charge as the following example illustrates.
Example
Nicola, who receives Child Benefit, is employed as a teacher and earns £64,000
a year. Her husband Alan is a self-employed solicitor and his accounting year end is
31 March. He is late in submitting his books and records to his accountant for the
year ended 31 March 2025. His results for that year will form his taxable profit for
2024/25. Nicola and Alan do not have any other income other than their earned income
but his profits are generally in excess of £70,000. On this basis Nicola
assumes that Alan will be liable for the charge.
In January 2026 Alan's accountant completes his tax return, files this in advance of
the 31 January deadline and advises that his profit has reduced to £48,000 as
he had experienced a number of bad debts.
As a result Nicola has the highest income for 2024/25 and is therefore responsible
for paying the charge by 31 January 2026 and she will need to contact HMRC about
this.
For couples who do not share their financial details there is a problem as
it is difficult to accurately complete their tax return (or know if they need
to contact HMRC to request one) if their own income is over £60,000 and Child
Benefit is being claimed. Only the highest earning partner is liable so this needs to be
determined.
Changes in circumstances
As the charge is by reference to weeks, the charge will only apply to those weeks of the
tax year for which the partnership exists. If a couple breaks up, the partner with the
higher income will only be liable for the period from 6 April to the week in which the
break up occurs.
Conversely, if a couple comes together and Child Benefit is already being paid, the
partner with the higher income will only be liable to the charge for those weeks from
the date the couple start living together until the end of the tax year.
So what is the adjusted net income of £60,000 made up of?
It can be seen that the rules revolve around 'adjusted net income', which is broadly:
- income (total income subject to income tax before any Personal Allowances less
specified tax reliefs e.g. trading losses and payments made gross to pension
schemes)
- reduced by grossed up Gift Aid donations to charity and personal pension
contributions which have received tax relief at source.
In some cases it may be that an individual may want to donate more to charity or make
additional pension contributions: for example, to reduce or avoid the charge.
Inequity applies as household income is not taken into account.
Therefore, equalising income for those who have the flexibility to do so such as in
family partnerships or family owner managed businesses may be important.
The charge
An income tax charge will apply at a rate of 1% of the full Child Benefit award for each
£200 of income between £60,000 and £80,000. The charge on taxpayers
with income above £80,000 will be equal to the amount of Child Benefit paid.
Example for 2025/26
The Child Benefit for two children amounts to £2,252 per annum. The taxpayer's
adjusted net income is £70,000. The income tax charge will be £1,126.
This is calculated as £2,252 x 50% (£70,000 - £60,000 =
£10,000/£200 x 1%).
How does the administration operate?
In the self assessment system individuals are required to notify HMRC if they have a
liability to income tax, capital gains tax (CGT) and the High Income Child Benefit
Charge by 5 October following the tax year.
In addition, the charge is included in Pay as You Earn (PAYE) regulations so that it can
be collected through PAYE, using a reduced tax code. It is also included in the
definition of tax liability, so that it could potentially affect payments on account and
balancing payments.
So should you continue to claim Child Benefit?
It is important to appreciate that Child Benefit itself is not liable to tax and the
amount that can be claimed is therefore unaffected by the charge. It can therefore
continue to be paid in full to the claimant even if they or their partner have a
liability to the charge.
On the other hand Child Benefit claimants are able to elect not to receive the Child
Benefit to which they are entitled if they or their partner do not wish to pay the
charge. This will not affect the credit available (for state pension purposes) to
certain people who stay at home to look after children (provided that an initial claim
for child benefit was made when the child was born).
An election can be revoked if a person's circumstances change.
But I don't file a tax return?
It may well be that you and/or your partner have not filed a tax return before but
this may need to change. You need to tell HMRC by 5 October following the end of
the tax year if you think a charge may be due.
Guidance
HMRC have issued some guidance on the charge and the options available which can be found
here. This
should be essential reading for many families.
How we can help
If you live in the Dartford area and you are unsure about anything to do with the
Child Benefit charge or would like to discuss the matter further including how we
might be able to minimise the tax charge which may apply to your family, please do
not hesitate to contact us at
Kelley & Lowe Limited.