Child Benefit Tax Charge – Confessions of an Objektophilie

I’m going to let you into a secret…myself and Mrs TTF sometimes have “disagreements” over things.  At times there are raised voices and on some occasions even tears (I usually pretend I have been chopping onions at this point).

Following these discussions we obviously sit down run through the strengths and weaknesses of each opposing point of view and then agree that Mrs TTF was right all along.  One of the continuing areas of disagreement is whether to get a bigger TV.  Our current TV is 26” and was only purchased because our old abode was the size of a dolls house.  Mrs TTF constantly says in a soothing voice that size doesn’t matter, but when you cannot see it from the other side of the room there is a problem!  Anyway back to the TV, boom boom.

I would like a 40” Samsung ES8000 smart TV.  Yes, I’m sure you will agree with me it’s like TV porn!    I paw over the display model in John Lewis on a regular basis.  I have been hanging out in the technology department so long that I’m developing Objektophilie (or so my shrink says)…..who had to google it?

Mrs TTF points out that we have to spend our money on boring things like childcare.  Reminding her that our childcare is tax efficient cuts no ice so the TV remains an item on my wish list.

Unfortunately there is an issue that is going to arise which is bigger than my forbidden love.  From 7 January I am going to be taxed on money that Mrs TTF will receive.

The Tax Bit

If your household is currently in receipt of child benefit and either parent/partner’s adjusted net income is over £50,000 then you will be subject to an income tax charge on a sliding scale.   The maximum charge will be applied if your adjusted net income is over £60,000.

Do you need to do a tax return because you have kids?

Do you need to do a tax return because you have kids?

For example if you your adjusted net income is £55,000 then you will face a tax charge equivalent to 50% of the child benefit you receive.

To make matters worse if you do not prepare a tax return already you will be dragged into the self assessment system.  If you do not want to do a tax return you can elect to not receive child benefit which would only make sense if you received over £60,000.

I’m not going to go into the rights and wrongs of this charge as it has been done to death elsewhere.  The fact is that it will apply and you need to deal with it NOW!

Some of you will have noticed I have used the words adjusted net income instead of salary/earnings.  This is because you have to calculate your income as follows to ascertain whether you have breached the £50,000 limit:

Add up all of the following:

  • income from employment (including any company benefits)
  • profits from self-employment
  • taxable social security benefits
  • pensions (including the State Pension)
  • savings, dividend and rental income

Then deduct the following

  • payments made gross to pension schemes – those have been made without tax relief
  • trading losses, for example trade loss relief or property loss relief
  • If you made a Gift Aid donation, take off the ‘grossed-up’ amount – what you paid plus the basic rate of tax.
  • If you made a contribution to a pension scheme where your pension provider has already given you tax relief at basic rate, take off the ‘grossed-up’ amount – what you paid plus the basic rate of tax.

HMRC have a good website  to do help you do this calculation.

It is therefore important to work this figure out NOW!  Before you know it Christmas will be here and you will have forgotten all about it until you have to pay the charge!

Once you have calculated your adjusted net income you need to ascertain whether it can be reduced to either extinguish the charge or reduce it.  If you can replace your outgoings with tax free benefits or transfer income to your partner (see my other posts for tax saving tips) then you could potentially retain your household income and avoid having to prepare a tax return.

If you have any comments let me know and I will respond to them all.

I’m going to have to go now as the security guard is trying to throw me out of the technology department for taking indecent photos of my Samsung……….

By Peter Cross


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