It is a common misconception that state benefits are not taxable.
The following benefits are some of the most common that enjoy tax free status :
n Housing benefit
n Income Related Employment and Support Allowance
n Income Support (unless you are involved in strike action)
n Working Tax Credit
n Child Tax Credit
n Disability Living Allowance
n Attendance Allowance
n Pension Credit
n Winter Fuel Payments (including Christmas bonus)
n Maternity Allowance
n Universal Credit
Child Benefit has tax free status, though you need to be aware of the High Income Child Benefit Tax Charge.
If either you or your partner receive child benefit and have individual income over £50,000 you will be liable for the charge.
If both partners earn above £50,000 it will be the higher earner that is liable for the charge.
In many cases the charge is assessed on one partner, even though the other has received the child benefit. The term “partner” covers the person you are married to, in a civil partnership with or are living with as if you were married/or in a civil partnership.
The tax charge is 1% of the child benefit received for every £100 that the income is over £50,000. Therefore, if your income is over £60,000, the whole amount of the child benefit becomes repayable.
The following benefits are all taxable :
n State Pension
n Jobseekers Allowance
n Carers Allowance
n Employment and Support Allowance (contribution based)
n Incapacity Benefit (from the 29th week of receiving it)
n Bereavement Allowance
n Pensions paid by the industrial Death Benefit Scheme
n Widowed Parents Allowance
n Widows Pension
Many people do not realise that these are taxable, either because their income falls below their personal tax free allowance and hence there is no tax charge, or because these benefits are taxed through their PAYE coding on another source of income. Please be aware that if you complete a Self Assessment Tax Return you will need to enter these on your Return.