There have been rumours for the last few years of some form of taxation and the government have finally selected a simple solution:
If you or your spouse/partner:
- claim child benefit
- and either of you has income of over £50,000 per year
your family will be subject to the High Income Child Benefit Charge (HICBC). This simply claws back child benefit paid after 7 January 2013 via the self assessment system. This charge must be paid by the highest earner in the family irrespective of who actually receives the child benefit.
If you are the highest earner in the family, you will need to report the amount of child benefit the family receives on your self-assessment tax return. For 2012/13 this only relates to child benefit received after 7 January 2013, but in future it will be the annual child benefit received. This will either be collected via the self assessment payment on 31 January or via PAYE tax code.
As the HICBC reclaims the full amount via the tax system you can elect not to receive child benefit from 7 January 2013, this will also mean you will not be obliged to complete a tax return to repay the amount. This election can be reversed if your income reduces however you may miss out on some child benefit. Despite having to complete a tax return and repay part or all of the tax, there are benefits in continuing to claim:
- Non working mothers are eligible for credits towards her NIC history under Home Responsibilities Protection only if child benefit is claimed
- Even if it has to be repaid the family has the benefit of the funds in their account for upto 10 months after the end of the tax year
From a tax planning perspective there is also the option of reducing or transferring some of the higher earners income. This may include:
- Pay more personal (not company) pension contributions in the tax year
- Increase the Gift Aid donations you make making sure that they are made by the highest earner
- Reduce the amount of income you extract from your own company and if you can justify it employ your spouse or partner in your business
- For sole traders you could take your spouse /partner into partnership, which could spread the income between you
- For business partnerships you could consider changing the profit sharing ratios so you each receive a more even amount of profit.
If you are married and living with your spouse, you can transfer income generating assets to your spouse tax free eg shares, savings or let property. Transferring assets between individuals who are not married may well create a tax charge.
This is only a guide to the changes and options available and you should seek professional advice if you have a specific query relevant to your personal circumstances before taking any further steps. If you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”