From 7th January 2013, child benefit is means tested for the first time. If you earn over £50,000 and claim child benefit, the changes could increase your tax bill by thousands. Find out how you can reduce your income tax bill with our quick guide.
Child benefit is a tax free benefit administered by HMRC and paid to most people with children under 16 or children under-going full-time education. It is paid to the parent responsible for the child or children.
Child benefit is £20.30 a week for the eldest child and £13.40 a week for each of the other children.
High income child benefit charge
The high income child benefit charge is applied where one member of a household earns more than £50,000.
The income tax charge will apply at a rate of 1% of the full child benefit for each £100 of income between £50,000 and £60,000. For example, if you earn £54,000, 40% of your child benefit will be taken back. For those earning over £60,000, the charge will be equal to the benefit received.
This applies where:
A married couple are living together
Civil partners are living together
A couple are living together but are not married
Note that as the high income charge will be introduced from Monday 7th January 2013, it will only apply for 13 weeks of the 2012/2013 tax period.
Pension contributions example
If you have an adjusted net income of £58,800 and were to increase pension contributions up to £8,800 gross to your registered pension, the income tax charge on child benefit will be eliminated.
A similar saving could also be achieved by agreeing a salary sacrifice arrangement with your employer.
Please note that this article has been produced for information purposes only and does not act as a substitute for advice. Barchester Green Investment offer whole-of-market independent financial advice. Please get in touch for more information.