In our latest article, we take a look at the Child Benefit system and how clients may be able to preserve their entitlement.
New legislation came into force on the 7th January 2013 which states that:-
If one parent’s income is above £50,000 they’ll receive a 1% tax charge on the total amount of child benefit they’ll receive for every £100 of excess income.
If one parent’s income is above £60,000, their tax charge will equal the amount of child benefit they’ll receive.
If both parents have income above £50,000, HMRC will apply the charge to the parent with the higher income only.
HMRC use ‘adjusted net income’ for calculating any liability for the charge. This is found by taking the client’s income that is subject to tax, and then deducting specific items such as trading losses and gross pension contributions paid by the member.
Opportunities available in this area include:-
- Reduce income through a pension contribution/ salary exchange to avoid or reduce the tax charge.
- Reduce income by making a charity payment through gift aid.
- Choose to opt out and stop receiving child benefit payments.
- Pay the lower earner’s contribution to the highest earner’s pension.
- Transfer income from savings to the lower earning partner.
Don’t lose your child benefit unnecessarily!