Parents who have separated are being advised to review their Child Benefit claim as some have unexpectedly faced significant bills. The Low Incomes Tax Reform Group (LITRG) has issued a warning, urging couples whose circumstances have changed to check their original claim. The warning is in response to a ‘tax trap’ issue that could expose some parents to the High Income Child Benefit Charge (HICBC).
The HICBC requires parents earning over £50,000 annually to repay a portion or all of their Child Benefit through taxes. Since Child Benefit is claimed by an individual rather than a couple, the benefit is deposited into the account designated by the claimant when they applied. This arrangement can become complicated when couples separate.
In the case of separation, it is possible for couples to forget who the original claimant was and assume that the person receiving the payments is the claimant. However, this assumption may be incorrect, leading to problems if the claimant’s adjusted net income later exceeds the £50,000 threshold, even if the payments are redirected to their former partner’s account, and that person earns less than £50,000.
Furthermore, if the claimant has a new partner whose income exceeds the threshold, even if they were not involved in the original claim, they could also become liable for the HICBC. This is because the initial calculation of the charge considers the adjusted net income of the claimant and their partner, if applicable.