LITRG: Child benefit tax trap warning for separated couples
The Low Incomes Tax Reform Group (LITRG) is asking separated couples to check that their child benefit claims do not unwittingly leave them exposed to the high income child benefit charge (HICBC).
The warning follows a recent First-tier Tribunal decision that a parent was liable for the charge despite that fact that the benefit was paid to their former partner.2 LITRG has also been contacted by others in a similar position and has published information on what claimants can do if faced with this situation.3
Child benefit is always claimed by an individual, not a couple. The claimant is the person who completes and signs the form to make the claim, even if they choose for their partner to receive the benefit payments. As some years may have passed between the original child benefit claim being made and the separation, it’s possible that people may have forgotten who the claimant originally was and assume it is the person getting the payments.
If a couple separates, the claimant could become liable for the HICBC if their adjusted net income later exceeds the £50,000 threshold, even if the payments are paid into their former partner’s account. It is also possible that any new partner of the claimant might become liable to the HICBC if they exceed the threshold and are the higher earner, even if they had nothing to do with the original claim. This is because the way the charge is worked out initially looks at the adjusted net income of the person who made the claim and any partner they have.4
LITRG is urging child benefit claimants to review their child benefit arrangements if they have separated from the partner they had when the claim was originally made. In doing this, claimants should check that these arrangements continue to be appropriate to their circumstances and to avoid being unwittingly exposed to the HICBC.
Some separated couples may decide they want the person who made the original claim to continue doing so, even if the child benefit payments are being paid to the other parent or carer,5 while others may seek a new arrangement – particularly in cases where the HICBC would otherwise be payable by the claimant.
LITRG understands that it is not possible to retrospectively change the name of the person claiming child benefit to avoid the charge, but it is possible to end the claim for child benefit and for the former partner to make a new claim. However, this could mean that the former partner (or any new partner they may have) may be liable to the HICBC themselves if they earn above the HICBC threshold.
If taxpayers are found to be liable for the HICBC but have failed to notify HMRC, they may be charged penalties – but if they have a reasonable excuse for the failure then the penalties can be appealed.6
Claiming child benefit can also impact a person’s entitlement to a state pension, as it attracts National Insurance credits. While these can be transferred to the other parent or carer, deadlines and conditions apply.
Tom Henderson, LITRG Technical Officer, said:
“When making a child benefit claim, it might feel like it doesn’t matter which person fills in the form – but it does. The claimant is the person responsible for keeping the claim up to date and is the person liable to repay the benefit if it is overpaid. The claimant is also the person automatically entitled to National Insurance credits, which may help towards a state pension, and they may also be liable to the high income child benefit charge.
“Therefore, if the ‘wrong’ person claims child benefit, it could have significant financial consequences. In particular, liabilities to the high income child benefit charge can arise in cases of separation which feel particularly unfair to those involved.
“We would encourage everyone with children for whom child benefit is being paid – especially separated couples – to check they are aware of who the claimant is and what the consequences of that claim are.”
- Child benefit is a universal benefit that is paid upon a claim to the parent or carer of a child up to the age of 16 (or age 20 if in approved education or training). However, if the claimant or their partner has an adjusted net income of over £50,000, they will generally be liable to pay the high income child benefit charge, which aims to recoup the benefit for those on higher incomes. See more here.
- The ruling (Meades v HMRC) can be read here. Mr Meades separated from his ex-wife in 2017. He was found to be liable for a £1,076 charge for the 2019/20 tax year because in that year his adjusted net income was higher than £50,000 and he was the child benefit claimant, even though the child benefit payments were made to his ex-wife.
- See https://www.litrg.org.uk/latest-news/news/230811-your-ex-partner-receiving-child-benefit-your-child-read
- A ‘partner’ for HICBC purposes means a spouse or civil partner (unless separated), or someone with whom the person is living together as if married or in a civil partnership.
- For example, a claimant who is not receiving the payments themselves may require the National Insurance credits awarded with a child benefit claim for their own state pension.
- See https://www.litrg.org.uk/tax-guides/tax-basics/enquiries-penalties-appeals-complaints-and-debt/tax-appeals