Child Benefit Changes - will this affect you?

In the furore about the ‘granny tax’ and “pasty tax”, the ‘reform’ of Child Benefit seems to have sneaked under the radar. As part of the reforms to the welfare system, Child Benefit will be withdrawn from households that include certain higher earners.

Although the change applies from January 2013 the calculation to decide whether or not a household is affected by the reform includes the full income for 2012/13. So those households that include higher earners need to be aware of the rules now so they can plan to ensure they don’t miss out unnecessarily.    

Legislation will impose a new charge (the High Income Child Benefit charge) on a taxpayer who has adjusted net income over £50,000 in a tax year where either they or their partner, if they have one, are in receipt of Child Benefit for the year. Where there is a partner and both partners have adjusted net income in excess of £50,000 the charge will apply to the partner with the higher income.

So an inequity arises! A couple with one individual having £60,000 of adjusted net income will lose all of the Child Benefit, whilst a couple both working with adjusted net income of £49,999 each will retain it all. Therefore, equalising income for those who are able becomes important.

An income tax charge will apply at a rate of 1% of the full Child Benefit award for each £100 of income between £50,000 and £60,000, rounded down to the nearest pound. The charge on taxpayers with income above £60,000 will be equal to the amount of Child Benefit paid.

This charge will have effect for any week beginning on or after 7 January 2013 and for 2012/13 will apply to the Child Benefit paid from that date to the end of the tax year. The income taken into account will be the full income for 2012/13.

The charge will not happen automatically. It is up to the individual to declare the position by submitting a self assessment tax return thus increasing the admin burden on families.

There may well be steps that can be taken now to reduce the impact of the charge. If you think you could be about to lose the full benefit of your Child Benefit claim and would like to explore ways of preserving it please contact me at colin.hamilton@wardwilliams.co.uk

www.wardwilliams.co.uk;  01895 236335