Moving in with your partner could land you with a £2,500 tax bill according to Government rules
MANY people in long-term relationships want to move in with their partners, but confusing government rules mean you could get hit with an unexpected tax bill.
If your partner earns more than £50,000 a year, you'll have to pay back any child benefit you received that year, even if your partner isn't the child's father.
That's because any households where one person earns more than the threshold aren't entitled to the whole of the benefit.
If your partner earns more than £60,000 a year, you'll have to pay back the full amount. For a parent with three children, they'd face a £2,500 tax bill.
If your partner earns between £50,000 and £60,000 you'll only have to pay some of it back.
Confusingly, a household where both partners earn £50,000 exactly (so a household income of £100,000) would not have to pay any back.
But in a home where one partner doesn't work and the other earns £50,001, then some child benefit has to be paid back.
Lots of people are unaware of these rules meaning that the hefty tax bill could leave them substantially out of pocket.
Even if the new partner moving in isn't the children's parent, you still lose the benefit.
How to avoid the child benefit tax bill
THERE are three options when it comes to dealing with child benefit when one partner is a higher earner.
You can:
- not claim the benefit at all
- opt claim the benefit, but not to receive payment of it
- receive the benefit but, in effect, pay some or all of it back through the HICBC tax charge
The safest thing to do is opt to claim the benefit but not get payment for it.
Choosing this option will mean that you still get national insurance credits until your child is 12, which will help you make sure you get your full state pension.
It will also mean that you don't get a large tax bill shock when you have to repay benefit later.
Critics of the rules, including the Office for Tax Simplification (OTS), are arguing that they need to be changed.
One big problem is that lots of people choose not to claim child benefit in the first place, to avoid having to repay the child benefit
But this means that parents - usually mothers - won't get national insurance credits and could miss out on some of their state pension.
It also means that children won't automatically be issued with a National Insurance number when they turn 16.
Bill Dodwell, the OTS tax director said: "This is inherently confusing - and people can still lose out.
"The OTS recommends that the government reviews the administrative arrangements involved to improve the situation - and also looks at the position of those who have lost out since 2013."
The group is calling for the government to let people who have opted out of child credit restore their national insurance credits.
Sean McCann, a chartered financial planner at NFU Mutual, said: “This little-known quirk is probably the last thing on anyone’s mind when they move in with a new partner."
Tom Selby, a senior analyst at AJ Bell added: "The suggestion people should be able to claim back NI credits if they’ve missed out is common sense and the government should reform the system to ensure that people understand the implications of not claiming child benefit.”
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