Simply Tax

Examples of the High Income Child Benefit Charge works


Hopefully, you’ve read what the High Income Child Benefit Charge is, but if not, you can find it here.

Let’s go through a couple of examples of how HMRC will assess whether this applies to you or not.

Example 1:

  • You earn £35,000
  • Your partner/spouse earns £45,000
  • You own an investment property together, which gives a rental profit of £5,000
  • You have 2 children and claiming child benefit  

As the calculation is based on “adjusted net income”, we have to include all taxable income. In this case, the rental profit of £5,000 is split equally, so adding £2,500 to each person’s adjusted income figure.

Even with this adjustment, your earnings would be £37,500 and your partner’s would be £47,500. As both are under £50,000, neither person would be required to pay Child Benefit back to HMRC.

Example 2:

  • You earn £52,000
  • Single parent raising a child and claiming child benefit
  • 5% of your salary is used to make pension contributions
  • No other income

On the face of it, as the salary is over £50,000 part of the child benefit being claimed would be payable. However, as 5% of your salary is being put aside (£2,080) each year, we can deduct that from your gross salary, so we get £49.920. Things like pension contributions you make, from your taxable income, is classed as a tax-deductible expense. In this case, it is just enough to fall below the £50,000 limit and therefore, you can keep the child benefit.

Note that being a single parent does not exempt you from potentially having to pay back some or all of the child benefit, if your “adjusted net income” is over £50,000.

Example 3:

  • You earn £25,000
  • You are divorced but living with a long term partner
  • You have a child from when you were married, and claiming child benefit
  • The partner you are living with has an income of £60,000 made up of a job and profits from a rental property

A slightly tricky situation but it is a common scenario people send us queries about. Based on the above information, it is likely that both you and your new partner living with you are responsible for raising that child. Even though you are claiming the child benefit, it is your new partner living with you who will need to declare and pay all of the child benefit within their self-assessment tax return, back to HMRC. Even though in your new relationship, there is no legal relationship between you and your partner (such as marriage or civil partnership), living together in a long term relationship as if you were is still grounds for the child benefit to be declared and paid back to HMRC.

Sounds confusing? Don’t fall foul of HMRC!

If you or your spouse/partner fall into this category, make sure you stay compliant with HMRC and complete a self-assessment tax return.

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