how tax planning could minimise the high income child benefit chargecreative77
As of 6 April 2019 the higher rate tax threshold has been increased to £50,000, which is good news for many taxpayers.
However, this also is the same figure when child benefit starts being clawed back and there has been no increase in this figure since it was introduced back in 2013/14.
what is high income child benefit charge?
The charge applies if you have adjusted net income* over £50,000 and either:
- You or your partner receive Child Benefit
- Another person receives Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep
It does not matter if the child living with you is not your own child.
Child benefit continues to be paid at the rate of £20.70 a week for the eldest child and £13.70 for each additional child.
The high income child benefit charge is 1% for every £100 that adjusted net income exceeds £50,000 multiplied by the child benefit claimed.
how can tax planning help minimise the high income child benefit charge?
By planning efficiently you can potentially reduce this charge, if you would like further advice on this or would like to talk through in more detail please do not hesitate to contact us at Appleleaf Accountancy.
Below is an example of how you could reduce this charge with some relatively straight forward changes.
A couple with two children would receive £1,789 a year in child benefit.
If the husband, a sole trader, made a profit of £55,000 (also his adjusted net income) after paying his wife a salary of £12,000 he would have to pay the high income child benefit charge of £894 (for 2018/19) in addition to his normal income tax and NIC bill.
However, if he brought his wife into a partnership and they shared the profits equally their income would be £32,500 each and there would be no high income child benefit charge.
Similarly, if the business was a limited company they would be able to equalise their income so that the charge would not be payable, so it is definitely worth considering.
* Your adjusted net income is your total taxable income before any personal allowances and before any deductions such as Gift Aid and pension contributions.