According to the Office of Tax Simplification (OTS), the Government needs to urgently review the charge that applies when an individual claiming child benefit or their partner has an income of more than £50,000.
The High Income Child Benefit Tax Charge (HICBC), which applies if an adult in the household has taxable adjusted income in excess of £50,000, is withdrawn at a rate of one per cent for each £100 of excess income over this, and once an income of £60,000 is reached, 100 per cent tax is applied to the high earner.
Until January 2013, Child Benefit was a universal non-means tested tax-free benefit. However, in 2018-19, 1,349,000 families were affected by the changes. The rates currently payable are £20.70 per week for the first child and £13.70 per week for each sibling. Therefore, a family with three children would receive £2,500 a year.
However, some experts have claimed that the changes are controversial, as, under the new tax rules, someone who has an income of more than £50,000 and moves in with a new partner, who already has children and is claiming child benefit, would be responsible for paying HICBC, even though the higher-earning partner is not necessarily responsible for the children. Whereas, two parents living together with a combined income of £96,000, from two individual incomes of £48,000, would not have to pay HICBC as their individual incomes are below the threshold.
Some people do not claim child benefit because the tax is so complicated. However, this can mean they lose out on National Insurance credits towards the state pension, and their child will not automatically receive a National Insurance number as they turn 16, which can mean they will not pay the right amount of tax until they can arrange to get one.
There are several other aspects of the HICBC that critics claim are unfair, which will be covered in next week’s blog.
