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For 2001-02 and 2002-03 this rate restricted relief is available to any individual who has a child living with them aged under 16 (at the start of the tax year). The credit will be restricted to one claim per family. The credit is given to the person with the highest income. If the Partner or unmarried partner's income is below the higher rate threshold the credit may be split equally between them.
The credit is based on an allowance of £5,200 @ 10% = £520 (2001-02). (£5,290 in 2002-03.)
If recipients income is taxed partly at the higher rate, the credit is reduced by £1 for every £15 of income taxed at the higher rate. For example, if £1,500 is taxed at 40% the credit will be reduce by £100 to £420. (In some places the abatement is expressed as a reduction of £2 of allowance for every £3 that the income exceeds the limit. The result is the same. In this example £1,500 x 2/3 = £1,000: (£5,200 - £1,000) @ 10% - £420.)
If the recipients income is so low that all or part of the credit cannot be used, the unused portion may be transferred to the spouse or unmarried partner.
In 2002-03 an additional £5,200 will be paid for a baby born on or after 6/4/02 bringing the maximum allowance for 2002-03 to £10,490.
From 2003-04 onwards a non-taxable benefit is paid to the parent so CTC falls outside the tax computation.
