With the announcement in the recent Budget regarding Child Benefit withdrawal for higher income earners there seems to be some confusion over how this will be implemented. Here are some answers to bring more clarity to the subject.
So what has changed in the Budget?
Originally child benefit was to be withdrawn for higher rate taxpayers, but following wide criticism the proposals have now been changed. Child benefit will now be withdrawn gradually once one person in a household earns £50,000. The rate of withdrawal is 1% of child benefit for every £100 earned over £50,000, resulting in total withdrawal once earnings of £60,000 have been achieved.
When will these changes take effect?
The proposed changes will take effect from January 2013.
So will I stop receiving child benefit from January 2013?
No, even if you or your partner or you are earning over £60,000 a year you will still receive your full child benefit in the normal way. However, the tax coding of the person earning £50,000+ will be changed to enable the clawback of benefit through additional Income Tax.
If both partners earn over £50,000 then the extra Income Tax will be taken from whoever earns the most regardless of who actually receives the child benefit payment.
What happens if I am separated from my partner ?
If you are separated and receive child benefit, you will be permitted to keep your payments in full whilst your earnings are below £50,000. Your ex-partner will not suffer any extra Income Tax payments if his/her earnings exceed £50,000, unless they are in direct receipt of child benefit payments.
Is there anyway I can avoid the extra Income Tax and retain my child benefit?
If you reduce your taxable income below the threshold then you will retain your child benefit without extra Income Tax payments. You could pay into a pension plan or purchase childcare vouchers which both qualify for tax relief. However, I wouldn't advise trying to keep your salary under £50,000, by say not doing overtime, as if you do the sums you will probably be out of pocket.
Is this the beginning of the end for child benefit?
I don't think this will mean the end entirely but child benefit could be merged with some other benefit, such as Tax Credits, which are means-tested as George Osborne is keen to streamline the benefit system.
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