Child Allowance Charge – Do you earn more than £50,000?

From 7th January 2013 any family in receipt of Child Benefit will effectively have some of this benefit withdrawn if either parent has an income in excess of £50,000 with the benefit being completely withdrawn if either parent has an income of over £60,000. 

The Child Benefit will normally be withdrawn by a tax charge being imposed on the higher earner.

The rules apply not only to married couples, but also to unmarried couples living together as well as couples in single sex civil partnerships.  

The rules have been criticised as being unfair as they only look at the income of the highest earner and not the combined income.

For example, consider Mr and Mrs Jones who have two children living with them. Mr Jones works full time earning £62,000 and because he has an income in excess of £60,000 all of the family’s child benefit is withdrawn. 

Their neighbours, Mr and Mrs Brown, also have two children but they both work and each earns £45,000 from their family company.  Despite the Browns’ combined income being £28,000 more than the Jones’ they have none of their child benefit withdrawn.

The rules do not require the higher earner to be a biological parent of the child in respect of whom the Child Benefit is received.  

Consider again Mr and Mrs Jones. Both have been married previously. The two children living with them are from Mrs Jones’ previous marriage.  Despite Mr Jones not being the father of the children he will have to refund the child allowance to HM Revenue and Customs.  The result would be the same even if he and Mrs Jones had decided not to marry. 

Taylorcocks’ senior tax partner Paul Taylor commented that “In our view this legislation is badly thought out, it can be perceived to be unfair and capable of manipulation which is never a good quality for tax law.  It also breaks the fundamental rule of independent taxation and I fear will be  impractical to enforce and will create future problems for HMRC.”

If you and your partner are affected by these new rules then please contact your taylorcocks client relationship manager as depending upon your circumstances there may be action that can be taken.