The Child Benefit is a valuable tax-free gift from the Government.
The benefit is withdrawn for high earners via the above charge on the tax return.
Unless you have chosen not to receive it, the charge applies where one parent has income over £50,000, with the benefit being completely lost for those earning £60,000.
Our clients’ family situation, e.g. existence and age of children/spouse’s income may well be an area where we do not naturally have knowledge.
This is mentioned on our tax return questionnaire, so do let us know if this applies to you.
As to whether you can do anything to mitigate the charge, there may be options for those operating their own company.
If you are principally paid by dividends and your gross income exceeds the higher rate threshold currently £41,865, you will suffer a higher rate tax charge over that limit equivalent to 25% of the net dividend.
If you are paying higher rate tax anyway, you could consider the following :
Continue to draw the same required level from the company, but have one high and one low year for issuing dividends.
If you are under the £50,000 for one year and over the next, then you should be entitled to the Child Benefit every other year.
The issue of a dividend below your drawing level will potentially lead to a loan from your company for a period and this needs to be carefully considered to avoid another tax charge in the company.
Also try not to exceed £100,000 in any one year as you will start to lose the personal tax allowance and over £150,000, you will pay 30.6% tax on your net dividends.
Simpler methods might be to consider gifting shares to a spouse so between you, you are under the limit.
If the company owes you money, you could keep your salary and dividends below the limit and cover the remainder of your drawings by recovery of the loan, which is tax-free.
Please talk to us for advice specific to your affairs, if this is of interest.
