Tax planning to minimise the High Income Child Benefit Charge

The High Income Child Benefit Charge was introduced in 2013/14 and applies if you have adjusted net income of over £50,000 and either:

• you or your partner receive Child Benefit
• someone else receives Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep

It does not matter if the child living with you is not your own child. Adjusted net income is your total taxable income before any personal allowances and adjusted for items such as Gift aid and Personal pension contributions.

The charge is 1% for every £100 that adjusted net income exceeds £50,000. multiplied by the child benefit received. Child benefit is currently paid at the rate of £20.70 per week for the eldest child and £13.70 per week for each additional child.

Example

A couple with 2 children would receive £1,789 a year in child benefit. The husband is a sole trader and made a taxable profit of £55,000, after paying his wife a salary of £12,000, The husband did not have any other sources of income and did not make any Personal pension or Gift aid contributions in the year.  He would have to pay the High Income Child Benefit Charge of £894 for 2019/20 in addition to his normal income tax and national insurance liability.

If he brought his wife into partnership and they shared profits equally their income would be £33,500 each and there would be no High Income Child Benefit charge. Similarly, if the business was a limited company, they would be able to equalise their income so that the charge would not be payable.

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