When an individual has adjusted net income of more than £50,000 they may be subject to the high income child benefit tax charge which is HMRC’s way of clawing back the benefit from high earners. For couples who both have income in excess of £50,000 the charge will be applied to the highest earner. Even if you personally are not claiming the benefit you can still be liable for the charge if your partner claims or where someone else does and contributes at least half of a child’s upkeep who lives with you.
For every £100 of adjusted net income over £50,000, a 1% charge is applied to the amount of benefit received. So once adjusted net income reaches £60,000 the charge will equal the full benefit received. Of course the charge is capped at 100% of the child benefit received.
Your adjusted net income is your total taxable income from all sources less any reliefs such as gift aid or pension contributions.
Example
Mr Jones earns a salary of £50,000 from his employment. He also receives taxable benefits to the value of a further £5,000 and contributed £2,000 to a pension scheme (without tax relief).
Mr Jones’ adjusted net income is £53,000 (50,000+5,000-2,000). Note that the pension contribution does not need to be “grossed up” because no tax relief was applied in the first place. Where the pension provider is applying basic rate tax relief to the pension contributions you will need to gross them up.
In the example above Mr Jones is exceeding the limit by £3,000. This means that 30% (3000/100) of the benefit received will be now be charged back.