Child benefit warning: Basic rate taxpayers set to be hit by high income charge from April | Personal Finance | Finance

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Child benefit will pay out £21.05 per week for eldest or only children, with £13.95 being awarded for additional children. In order to be eligible for child benefit a person must be responsible for a chlid under 16 and be living in the UK.

Most claimants will not face any additional costs when claiming child benefit but for those earning more than £50,000 per year, there will be additional tax costs down the line.

For claimants earning between £50,000 and £60,000, one percent of the family’s child benefit payment will need to be paid back to the state for every £100 earned over £50,000.

Where claimants earn more than £60,000 per year, the entirety of the child benefit payments will need to be paid back.

These payments back to the Government will need to be done through a Self Assessment tax return.

READ MORE: State pension: National insurance credits can be shared with family

While the high income child benefit charge (HICBC) is designed to only impact high earners, new analysis from the Low Incomes Tax Reform Group (LITRG) argued the threshold should be increased to avoid hitting basic-rate taxpayers for the first time come April.

LITRG pointed out that the spending review in November 2020 confirmed the Government will increase the higher-rate threshold in line with the September 2020 CPI figure.

This means the higher-rate threshold for 2021/22 is set to be £50,270 – exceeding for the first time the £50,000 threshold at which the charge begins to apply.

LITRG detailed this will make basic-rate taxpayers liable to the charge for the first time, which goes against the states original intent to only target higher-rate taxpayers.

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As a result of this, LITRG urged the Government to compensate for “eight years of inflation and rising wages” by raising the £50,000 income threshold to at least £60,000.

Tom Henderson, a Technical Officer at LITRG, commented on this: “When the high income child benefit charge was announced in 2010, the Government’s policy intent was that it would only affect higher-rate taxpayers from January 2013.

“For the 2012/13 tax year, the higher-rate threshold – the point at which an individual is liable to the higher rate of tax – was £42,475.

“Since then, the higher-rate threshold has risen broadly in line with inflation but the £50,000 threshold for the high income child benefit charge has remained static.

“The Government has so far resisted calls to up-rate the £50,000 threshold, but this is no longer tenable now the higher-rate threshold will overtake it from April 6, 2021.”

LITRG also went on to call for the point at which child benefit is fully clawed back to increase from £60,000 to £75,000.

This, LITRG argued, is to address the fact that larger families can face higher effective marginal tax rates when they are liable to the charge.

For example, where the charge applies to withdraw a child benefit claim for two children, the taxpayer must pay £60 in tax and National Insurance for an additional £100 earned between £50,000 and £60,000.

For three children, the rate increases to £67 for an additional £100 earned. LITRG detailed the structure of the charge encourages those otherwise liable not to claim child benefit.

This can have consequences for the would-be claimant’s state pension record, as they potentially miss out on National Insurance credits.

Tom concluded with the following comments: “The high income child benefit charge has been a controversial policy since its introduction.

“Despite its name, the way the charge operates has consequences for the whole household, including the partner with the lower adjusted net income, and the child.

“We would like the Government to carry out a review of the policy and address those areas where it appears the charge is not meeting its original objectives.”

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