Published On: Mon, Oct 14th, 2019

Tax warning: Partner could result in Child Benefit charge bill | Personal Finance | Finance

Last week, the Office of Tax Simplification called for a review of the High Income Child Benefit Charge. The charge applies when a person has an income of more than £50,000 and either they or their partner get Child Benefit, or someone else gets Child Benefit for a child living in their house, and they contribute at least an equal amount toward’s the child’s upkeep. This is regardless of whether the child living with the person subject to the charge is their own child or not. This means that should a person with an income of more than £50,000 move in with a new partner who has children and claims Child Benefit, they may face an unexpected tax bill.

Sean McCann, Chartered Financial Planner at NFU Mutual, said: “This little-known quirk is probably the last thing on anyone’s mind when they move in with a new partner.

“If you have a higher income than your partner and it exceeds £50,000 the onus is on you to tell HMRC and pay the tax bill. For some this runs into thousands of pounds.”

HM Revenue and Customs (HMRC) defines a partner as a someone one’s married to, in a civil partnership, or living with as though they were.

If a person has an income of £60,000 or more, 100 per cent of the Child Benefit payment would need to be repaid due to the tax.

This can mean that many high earners instead decide to opt of receiving it.

However, if one person in the family is not making National Insurance contributions, they can get National Insurance credits via Child Benefit, until the child reaches the age of 12.

This can count towards the state pension entitlement in later life.

For the full new state pension, a person needs at least 35 qualifying years on their National Insurance record.

It’s possible to opt to waive Child Benefit payments while ensuring one gets the National Insurance credits by completing a CH2 form.

Kay Ingram, Director of Public Policy at LEBC Group, commented: “With each year’s credit worth £250 per annum of State pension, that is a serious concern and impacts women disproportionately widening the gender pension gap.”

According to NFU Mutual, it is possible to continue receiving Child Benefit while saving money as a family.

This may be done by paying more into a pension pot.

An example of this is if the top earner in a family with three children earns £60,000, they could save £4,500 per year in tax by paying £8,000 into their pension.

£2,000 tax relief on top of the £8,000 would take the taxable earnings down to £50,000.

This would mean they could save £2,500 from the Child Benefit charge, but also take the income below the 40 per cent charge.

According to this example, the family could result in an additional £10,000 in their pension at a cost of £3,500, with a total of £4,500 saved in tax.

READ MORE: How much Child Benefit can I get? The weekly rates are affected by this one factor

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