Will You Lose Your Child Benefit?

As a part of the cost cutting exercise the Government has decided to restrict payments for child benefit to those paying 20% tax or less. This will take effect from 6th April 2013. Often child benefit is paid to the mother, who often is not working. The current plan is that the benefit will not be paid even if one of the couple earns enough to pay higher rate tax.

With my tax planning hat on and thinking of families - this means that pension contributions (which reduce the amount of tax that is paid) become more important, as does charitable giving. The numbers need to be finalised as in practice the basic personal allowance will increase and the Coalition Government have stated that it is their aim to gradually increase the personal allowance to £10,000. So it is important for anyone with income that is just tipping over into the 40% tax bracket (with children) that we review this with you. Strictly speaking a couple could earn £40,000 each (£80,000 in all) and still retain the benefit, but a family with one income that is say £45,000 would lose the child benefit. So if it is possible, some clever income and tax planning may be very wise indeed. So if that's you - get in touch.

Child Benefit is a tax-free income. An eldest child entitlement is £20.30 a week (£1055.60 pa) all subsequent children have a weekly allowance of £13.40 a week (£696.80 pa). As stated, this is a tax-free income, so for a higher rate taxpayer to replace this income the higher earner will need to earn £2,920.66 to effectively "stand still".