ONE of the biggest tax changes in January must have been the loss of some of all of the child benefit for an estimated 1.2 million families, with an estimated 70 per cent losing all of their benefit.
For a family with three children, this could mean that they are out of pocket by as much as £2,449 every year.
If one parent is earning more than £50,000 a year they will no longer be entitled to claim the total amount of child benefit. Where the earning of one parent is more than £60,000 they must stop claiming child benefit or repay a tax charge which, even for those with two children would be as much as £1,752 a year.
It should be remembered that the income figure includes benefits in kind such as a company car or other employee related benefits, interest on savings and rental income. The quirk within the regulation is of course that each parent could earn £49,000 so a total of £98,000 and still retain in full the child benefit whereas a couple whose earnings are split £60,000 to one and £5,000 to the other would lose all of their child benefit.
As the income taken into account by HMRC is “adjusted net income” which means income after pension contributions and charitable donations and after money is taken out through any salary sacrifice schemes like childcare vouchers and buying extra holiday, it is possible for some to reduce their income below or within the bands to reduce the tax you have to pay.
HMRC expects openness regarding financial affairs between parents and there will undoubtedly be many situations where one parent continues to receive the child benefit and the other pays an annual tax charge. A useful flowchart or helpsheet has been created by HMRC for those who believe they may be affected now or in the near future, this can be found at www.hmrc.gov.uk/childbenefitcharge
Dominic O’Brien is a Chartered Financial Planner and Director of Jamieson Christie Wealth Management Ltd. Please remember that the information given is for informational purposes only and is not intended to give or imply advice of any kind. Limits, terms and conditions may apply to one or more of the areas mentioned above. The value of investments and any income from them may fall as well as rise and you may not get back what you invested. The above is based on our understanding of the regulatory position as at January 2013.