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Finance Act 2012

Background Note

48.The new high income child benefit charge is the way the Government is implementing its policy of reducing the amount of child benefit available to families that include someone who has income above £50,000. The reason for this is that it is very difficult to justify taxing people on lower incomes to pay for the child benefit of those with higher incomes.

49.The introduction of a tax charge means child benefit can continue to be paid to all claimants who establish their entitlement to the payment, regardless of whether there is any liability to the tax charge, without means testing at the point of payment. The design of the charge means that only 15 per cent of families with children are affected by the charge.

50.The introduction of a taper for those with incomes between £50,000 and £60,000 smoothes the effect of the charge for those with income nearer to the lower end of the taper.

51.The new charge is based on entitlement to child benefit, rather than to receipt of child benefit. This is consistent with the approach of taxing social security benefits. It also avoids any unintentional element of double taxation that could arise following payment of child benefit as the result of a revocation of an election made under the provisions of an election not to receive child benefit. The example below demonstrates how this could happen if the receipts basis were used.

52.A child benefit claimant elects not to receive child benefit for the tax year 2014/15 because they believe their income will be above £60,000 making them liable to the high income child benefit charge for 2014/15. In July 2015 the claimant realises their income was lower than expected for 2014/15, revokes the election and receives the amount of child benefit due for 2014/15 in August 2015.  This is during the tax year 2015/16 when the level of their income does attract the charge. If the receipts basis were used, the claimant would be liable to the charge on the amount received in 2015/16 for the amounts for 2015/16 and for 2014/15. The entitlement basis ensures the claimant is only liable for the amount to which they were entitled for 2015/16 and that the amount for 2014/15 correctly escapes the charge.

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