The High Income Child Benefit Charge. From 2013 doctors earning an individual income of £50,000 or more and in receipt of child benefit maybe liable to this new tax charge.
Prior to deciding whether a doctor should continue to receive Child Benefit or stop payments, it is necessary to understand what the charge is based on, how it is calculated and what options are available to the doctor.
When looking at what the charge is based on, it is necessary to calculate the doctor's 'adjusted net income'. Broadly this is the total 'net' income less any gross gift aid contributions and gross pension contributions which have received relief at source (which in most cases will be your NHS pension contributions).
'Net' income includes salary, bonuses, certain taxable benefits, investment income and other income (such as property income).
Doctors who have an adjusted net income above £50,000 but are not entitled to Child Benefit themselves will only be liable to the charge for any part of the tax year during which they are living with someone who claims Child Benefit and whose own income is below £50,000.
If the doctor or doctor's partner income is between £50,000 and £60,000, the amount of the charge will be a 1% deduction of the amount of Child Benefit for every £100 of income which exceeds £50,000.
If either the doctor or doctor's partner's adjusted net income exceeds £60,000, the person with the higher income will be liable to the charge on the full amount of Child Benefit i.e 10,000/100 = 100%.
What Action Is Required?
- If neither doctor or partner has adjusted net income above £50,000, they will not be subject to the charge so no action is required.
- If either doctor or partner's adjusted net income is above £50,000 but below £60,000, the claimant may still wish to receive Child Benefit payments because the tax charge will be less than the amount of the benefit. If either fall into this category, the person with the highest adjusted net income must declare the payments to HMRC by registering for self assessment and completing a tax return.
- If either doctor or partner's adjusted net income exceeds £60,000, the person with the highest income will be liable to the charge on the full amount of Child Benefit. If either person falls into this category, it is possible for the claimant to elect not to receive the benefit by contacting HMRC, thereby negating any tax charge.
- Any charge is assessed through Self Assessment in the normal way.
Please get in touch on 0117 9665699 or firstname.lastname@example.org if you are in anyway unsure about how your Child Benefit should be treated. In addition there are planning opportunities by effectively reducing your 'adjusted net income' by making additional gross pension contributions or gross gift aid payments if this is appropriate for your individual situation.
By undertaking some simple planning, not only can doctors potentially increase their pension pot on retirement but they can also not be caught by the High Income Child Benefit Charge. Furthermore, they can continue to receive Child Benefit payments in the normal way, resulting in a beneficial outcome for all concerned.
Get in touch to find out more.