UK Child Tax Credit

Thanks Fruitgym. This is great info, unfortunately on this website of Q&A's there is no "What is Child Benefit". hah seems like a silly question, but it has useful info on how to claim "it", who qualifies for "it". But I would just like to know what "it" is.

Kbeech mentions they get it direct deposited, so I am assuming it's cash...how much does one get? Is this money from the government to help with childcare costs?

What I am trying to figure out is can I claim my child (dependent to reduce my taxable income). In most countries, at least the two I have lived in (Japan & US), you can claim your children as a dependent on your year end taxes to reduce your taxable income. Basically you get your standard deduction + a set amount for each child. I have looked online for UK tax calculators and none of them seem to ask if I have any dependents. Does the UK not give you a tax break for each dependent, this seems be a bit crazy, but I have no idea. Just would like to know if this is offered, I am moving there next year and trying to find out what my yearly take home will be so I can adjust how I will live. Thanks!

Thanks Fruitgym. This is great info, unfortunately on this website of Q&A's there is no "What is Child Benefit". hah seems like a silly question, but it has useful info on how to claim "it", who qualifies for "it". But I would just like to know what "it" is.

Kbeech mentions they get it direct deposited, so I am assuming it's cash...how much does one get? Is this money from the government to help with childcare costs?

Chidl benefit is money that you can claim from the government to help you out with the cost of raising your children (like to help with buying food and clothes for them).

You get £20.30 per week for your eldest child and then £13.40 per week for each of your other children.

It is usually paid to you every 4 weeks, but in some cases you can get it weekly.

What I am trying to figure out is can I claim my child (dependent to reduce my taxable income).

In most countries, at least the two I have lived in (Japan & US), you can claim your children as a dependent on your year end taxes to reduce your taxable income.

Taxes don't work that way in the UK - income taxes are based on individual earnings/salary, and have nothing to do with whether you have kids or are married.

If you are employed then your tax is usually taken out of your paycheck each month and the amount you pay is based solely on your salary (this method of paying tax is known as PAYE - Pay As You Earn).

In general, you won't need to file taxes unless you are self-employed or you work more than one job.

For example, my mum is employed by a company and pays tax via PAYE (so she files no taxes), but my dad is self-employed, so he files his taxes separately - his taxes have nothing to do with my mum's taxes.
 
Perhaps 'child tax credits' might be similar to getting a tax break for children in the US/Japan? However, they are classed as public funds and, as you said, you wouldn't be able to claim them when you get to the UK.

Sorry, I was away from my computer but see that ksand24 explained what child benefit is.

The UK tax system used to allow "deductions" for spouse and children but that system ended some while ago. Child benefit is supposed to go some way to compensating families for the lack of tax relief for dependants.

Thanks guys! Wow! Does the UK government give any explanation as to their rationale that deductions aren't necessary for dependents? I mean, every other first world country I know of gives you deductions for dependents to lessen the tax burden since you have another mouth to feed and body to clothe. Is there an overpopulation problem I wasn't aware of in the UK to not offer this.

Hmmm, so a working professional will be taxed at 40% of his earnings with 4 kids to support, and a single person supporting himself will be taxed at the same rate? But the 4 kids that father raises will go on to work and pay taxes to give the government more money. Well I guess I just figured the UK would be more in line with the rest of the western world. Strange, I guess for tax purposes once I have another kid or two, it will be best to move on from the UK.

Hmmm, so a working professional will be taxed at 40% of his earnings with 4 kids to support, and a single person supporting himself will be taxed at the same rate? But the 4 kids that father raises will go on to work and pay taxes to give the government more money.

Well, it depends on the salary you earn - you are only taxed 40% of anything you earn above £34,370 per year... and considering that 90% of the UK population earns less than 40,000 per year, not that many people pay more than 20% income tax.

Also, if you have kids you can claim child benefit and child tax credits (if eligible) and a single person cannot.

For income tax, if you earn less than £8,105 a year, you get taxed nothing. Then for everything that you earn between that £8,105 and £34,370 you get taxed 20%, and then anything above £34,370 you get taxed 40%.

So, if someone earns £40,000 per year, they are taxed 0% of £8,105 (£0), then 20% of £26,265 (£5,253) and then 40% of £5,630 (£2,252)... so they would pay just over £7,500 in income tax per year,

Then, presumably, the child tax credits (if they are eligible for them) and child benefit will account for the fact that they don't get 'tax breaks' for dependents in the UK (although from what I can tell, the IRS calls the tax break for dependents 'child tax credit' anyway - it's just that in the UK you claim the 'break' in advance and in the US, you get a refund on your taxes when you file them).

In the UK, say you have 4 kids, you would get £3,416 per year in child benefits and then, if you qualify for them, the child tax credit amount based on an income of £40,000 per year would be about £600 (I just did an example calculation for myself, with a partner who wasn't working, and 4 kids) - so that's £4,016 back of the £7,500 paid in tax.

Or, if you earned only £30,000 (one partner working, 4 kids), you would pay £4,379 in income tax, and you would get back £3,416 in child benefit, plus £1,711 in child tax credits - so you would actually get back more for your kids (£5,127) than you pay in income tax each year (£4,379).

Or, if you earned only £20,000, you would pay £2,379 in income tax, and you would get back £3,416 in child benefit, plus £2,823 in child tax credits (£6,239 in total).

Is there an overpopulation problem I wasn't aware of in the UK

In my opinion, there is.

But the 4 kids that father raises will go on to work and pay taxes to give the government more money.

Or, the 4 kids that the father brings up will go on to become benefit leeches and sponge off the system for most of their lives.  Both scenarios happen... all too often.

@ksand: thanks! Always enjoy reading your responses. Very informative and thorough. Thanks!

Okay, now this is all starting to make sense. I was unclear on what the Child benefit and credits were. That sounds more reasonable now. But I guess my question is what if you make more than that 40K a year.

I found this site: http://www.hmrc.gov.uk/taxcredits/payments-entitlement/entitlement/question-how-much.htm

Is this what I am looking for to tell me what credits and benefits I would receive for my children?

Let's say family A is a 4 person family, husband, wife and 2 kids. Wife is a stay at home mom, and husband makes 70,000 pounds as his annual salary. Based on that number and the calculator website above, the family gets no credits whatsoever. So this family doesn't qualify for Child benefits and credits because the husbands salary is too high???

Is this what I am looking for to tell me what credits and benefits I would receive for my children?

You would normally be able to claim child benefit, but not child tax credits (as you will not be UK citizens or permanent residents when you move here)

However, if you earn more than £50,000 per year (individual income), then you will be liable for an extra child benefit tax charge. Looking at the calculator for it (linked just below here), it looks like you are charged 100% of the annual child benefit for one child - so basically you would get nothing.

In this case, you would either claim the benefit and then pay it all back in your taxes (you would probably have to file taxes) or you can just request not to receive the child benefit at all, which would save you having to worry about paying the tax charge.

See here: https://www.gov.uk/child-benefit/overview

Let's say family A is a 4 person family, husband, wife and 2 kids. Wife is a stay at home mom, and husband makes 70,000 pounds as his annual salary. Based on that number and the calculator website above, the family gets no credits whatsoever. So this family doesn't qualify for Child benefits and credits because the husbands salary is too high???

Essentially, yes - although in your case this is irrelevant because you cannot claim the credits unless you are a UK/EU citizen or a UK permanent resident, which neither you nor your wife will be.

A salary of £70,000 is more than the majority of UK citizens can ever hope to earn in their lifetime (in terms of percentiles and average income, earning £70,000 in the UK is approximately equivalent to earning $200,000 in the US) and so the government reasons that anyone earning that kind of money can afford to raise children without needing to claim child benefits.

The reasoning is: why should people who earn a massive salary qualify for benefits that the government can barely afford to give them, when there are thousands of families struggling to get by on a tiny fraction of that and who desperately need the extra money to be able to feed and clothe their children?

Basically, we're in a situation right now where the government is in massive debt and they need to make cuts wherever they can. Hence the reason that high earners pay more tax, and are entitled to less in the way of benefits.

A salary of £70,000 is more than the majority of UK citizens can ever hope to earn in their lifetime (in terms of percentiles and average income, earning £70,000 in the UK is approximately equivalent to earning $200,000 in the US) and so the government reasons that anyone earning that kind of money can afford to raise children without needing to claim child benefits.

The reasoning is: why should people who earn a massive salary qualify for benefits that the government can barely afford to give them, when there are thousands of families struggling to get by on a tiny fraction of that and who desperately need the extra money to be able to feed and clothe their children?

Spot on, Ksand.  I was going to comment on this, but you said it much better than I ever could have done.
 

Thanks Ksand! Fantastic update!

Hmmm well I understand your statement and agree that those that are well off shouldn't need the support from the government. But I wouldn't say the family with a single income of 70K is well off. The system still seems a bit off to me. Because from what I have gathered so far, the family with both parents working and making (as you mention the average), 35K a year, they will be able to qualify and receive those child benefits and credits giving them an additional take home income per year to help with the cost of raising the children. As you mentioned it's different from the US but basically the same. Instead of a deduction which will result in a return of some money at the end of the year, the UK government just gives payments throughout the year. This seems all fair and good.

But here is where I don't understand. According to the above, the individual is only looked at as making the money for himself and the children and wife are not considered. So the family with both parents working and making 35K each a combined 70k get child benefit and child credits. But the family with only the father working making 70K (the same as the other family) doesn't qualify for a pence?

I really don't see how that is far at all. Perhaps its a culturally thing, UK is encouraging both parents to get out of the house to work and support their family and in exchange they get a few pounds here and there to help with experiences, rather than supporting a mother to be in the house to raise the family while the father works and earns the money. Am I reading this completely wrong, or does the family with only one parent working get screwed?

Thanks in advance! This thread has been extremely informative

You've read it completely right. Kind of silly the way they've worked it out...and completely unfair to families where only one parent works and the other stays home to watch the kids. Not that hubby and I have to worry....lol...we are WAAAAY below the 70,000.00 range! 

Darn! Well that stinks. It's sad how the world has changed, and seeing that the government is encouraging it, even more sad. Families no longer have that connection or community because they barely see their family or mothers because everyone is so busy to make a few bucks here and there.

Hmmmm, guess the wife should find a work from home job. Let me ask this, since the UK tax amounts don't give two shits about your children or spouse and only calculate your taxable amount based on the individuals take home, does that mean the parents can file completely separate taxes? So let's say the wife gets a work from home type of job and only makes 5000 pounds a year. Would she then be able to file for these credits, etc, or would she be disqualified because of their joint income being 75,000? I am going to guess she could qualify, because it doesn't seem to disqualify the two parents earning a combined 70k right?

Perhaps I'm too old school and a dying breed, but I think it's important to have the mother in the home to raise the children if she is into that.

But I wouldn't say the family with a single income of 70K is well off.

It may not seem well-off compared to salaries in the US (and other countries), but it is considered well-off in the UK. A salary of £70,000 puts you in the Top 5% of earners in the country.

The average individual salary in the UK is only £26,500 (http://www.bbc.co.uk/news/business-20442666), with the average combined household income being only about £31,000.

If you look at this article about the best paid jobs in the UK, you'll see that out of 422 job fields listed, only 1 job field pays more than £78,000 (Directors and CEOs), and only the top 4 job fields pay more than £60,000 (Directors/CEOs, plus Corporate Managers, Pilots/Flight engineers and Medical Practitioners).

Of all 422 job fields, 388 pay less than £40,000, 313 pay less than £30,000, 254 pay less than £26,000 and 181 pay less than £20,000 (it looks like the listed salaries are at the top of the range in some cases, as it says that meteorologists earn £40,000, but I am a relatively newly-qualified meteorologist and my current salary is only £22,000... I'll be lucky if I ever manage to reach £40,000 in the next 40 years before I retire).

I work for the UK government - our organisation is known for its world-leading research in climate change and meteorology, and we are in possession of one of the largest super-computers in the world. Our research scientists earn between £21,000 and £38,000 per year. The Head Researchers and Heads of Department earn about £45,000-50,000. Our CEO (who regularly consults with the Prime Minister and other members of parliament who run the country) has an annual salary of about £65,000.

Darn! Well that stinks. It's sad how the world has changed, and seeing that the government is encouraging it, even more sad. Families no longer have that connection or community because they barely see their family or mothers because everyone is so busy to make a few bucks here and there.

Hmmmm, guess the wife should find a work from home job. Let me ask this, since the UK tax amounts don't give two shits about your children or spouse and only calculate your taxable amount based on the individuals take home, does that mean the parents can file completely separate taxes?

Yes, everyone files their own individual taxes - or, as in many cases, they don't even need to file taxes because if they are employed they will pay the correct tax through PAYE anyway and won't need to file (I've been working in the UK almost 15 years, since I was 15, and I've never had to file UK taxes in my life).

I think I mentioned above that my dad files his taxes separately from my mum because he is self-employed. My mum is the main earner in the household, but her taxes are already calculated through PAYE so she doesn't file taxes.

So let's say the wife gets a work from home type of job and only makes 5000 pounds a year. Would she then be able to file for these credits, etc, or would she be disqualified because of their joint income being 75,000? I am going to guess she could qualify, because it doesn't seem to disqualify the two parents earning a combined 70k right?

Not sure - she would have to try the tax credits and child benefit calculators, entering both her and her husband's income and see what she was entitled to.

As has been mentioned though, because hardly any jobs in the UK actually pay more than £50,000, it's unusual for people to be in the situation where they don't qualify for anything anyway.

The child benefit cutoffs are quite new, and it was pointed out to the government that they're completely unfair for the reason you said (two people making £39k each keep it, while one person making £40k loses it), but they pushed it through anyway because they're jerks. And no, your wife wouldn't qualify if she got a low-paying job; it takes the whole household into account to determine eligibility, so if either partner earns more than the cutoff, that's it.

However, a family earning £70k a year IS well off in the UK; in terms of direct exchange rate it's well over $100,000 a year, and as ksand said, in terms of percentiles it's more like $200,000 a year. The average annual income is only about £25,000. Remember, out of pocket healthcare expenses are reduced because of the NHS (absolutely all medical care for children and almost all medical care for adults is free at point of access), and there are offsets in other ways; children's clothing doesn't have VAT, for example. The tax system is also really straightforward and easy, in the vast majority of cases you don't need to complete obnoxious and difficult forms for the UK like in the US.

The UK abolished tax reliefs for children back on 6 April 1979 as child benefit had been phased in during the period from 1975 to 1979 to replace both family allowances and child tax allowances.

http://www.revenuebenefits.org.uk/child-benefit/policy/where_it_all_started/

In essence this put cash directly in the hands of mothers of children; rather than reducing the tax bill of the husband (as back in those pre-independent taxation days the wife's income was assessed on the husband).

In 1997 eligibility for child benefit was limited to those UK residents not subject to immigration controls: http://www.legislation.gov.uk/uksi/1996/2327/made?view=plain.

From January 2013 the UK government will be further restricting child benefit to those on higher incomes.  The cost of implementing this change will probably be greater in the first year than the cost of continuing to pay these benefits; but the decision is one made for political reasons and politicians do not like reversing – even from daft ideas.

The UK continues to pay child tax credits (introduced 2003) to support those families on lower incomes.

The trick for Americans coming to the UK today is to maximise where possible things such as free NHS treatment, free education up to secondary level, the remittance basis of taxation, UK child benefit, UK child tax credits, UK and US tax benefits from UK employer sponsored pension plans and refundable child tax credits in the States. Planning around these is prudent and simpler than wishing the UK had a different set of tax and benefit regimes.