Bringing kids into the world is an expensive business. Last year studies estimated that the average cost of raising a child in the UK rose to £230,000. So when it comes to family finances, its important to get it right. If you fill in a self assessment tax return or claim a tax refund, remember to take any Child Benefit you’re receiving into consideration. Depending on your circumstances, those payments could make a big difference to your finances.
Child Benefit: the basics, and the dangers
There’s no great mystery or complexity about Child Benefit. The paperwork’s no great hassle and there’s no means testing involved to check your eligibility. However, there are some odd little ins and outs to the system that can trip you up if you’re not prepared for them. At RIFT, we often hear from people who’ve found themselves gazing down the barrel of an HMRC enquiry because they forgot to account for their Child Benefit payments in their refund claims or tax returns. It’s actually one of the more common pitfalls you could stumble into. Getting a long, hard stare from the taxman is never fun, so it’s always worth making sure you’re on the right side of HMRC’s rules.
High Income Child Benefit Charge
Right at the top of the list of Child Benefit’s stranger features is the High Income Child Benefit Charge. In general, Child Benefit doesn’t club you over the head for having savings or a decent salary. However, the system does get less generous the more you earn. You can still claim no matter what your income is, but it’s not all that hard for most or all of the benefit to be wiped out if you fall into a sneaky little trap the taxman’s set.
The High Income Child Benefit Charge only kicks in when either you or your partner makes over £50,000 a year. Exactly how hard that kick will be depends on your actual income – but by the time you hit £60,000 you’ll essentially get nothing. The actual calculation goes like this: you lose 1% of your Child Benefit for every £100 you make over the £50,000 limit.
This is where it gets weird…
Remember – your earnings aren’t added to your partner’s to check your eligibility for Child Benefit. Two parents making £49,999 each, for instance, can still claim the full amount. Another couple with one partner making £50,100 and the other making only £15,000 are actually losing 1% of their money, though. We know how strange that sounds, but we’d be lying if we said it was even in the top 10 chart of HMRC weirdness we deal with.
The small print
Here are a couple of extra points to remember:
• The High Income Child Benefit Charge can still apply when there’s someone living with you and claiming Child Benefit. This is only when you’re paying at least half of the child’s “upkeep”, though.
• The High Income Child Benefit Charge bill goes to the partner who makes the most money.
• It doesn’t matter if the child is yours or not.
Is it worth it?
Even if your income’s high enough to wipe out your entire Child Benefit, it might still be worth claiming it. Child Benefit comes with a few extra perks you might not want to miss out on. For instance, it could help you qualify for Guardian’s Allowance or National Insurance credits. Don’t be too quick to opt out of the scheme. Make sure you check out all the angles first.
If you don’t fancy getting hit with the High Income Child Benefit Charge, you can even choose not to accept the payments while still staying inside the scheme. You can protect your other perks that way, and even opt back into the payments if your situation changes. As with all tax matters, the best advice is always to get the best advice.
RIFT – The UK’s leading tax refund experts since 1999