By Matthew Kneller
We have recently had a number of discussions with clients concerned about the recent changes to Child Benefit.
Child Benefit – What is it?
You receive Child Benefit if you are responsible for a child under 16 (or under 20 if they stay in approved education or training).
There is a tax-free payment for each child although only one parent/ guardian can receive it.
Generally, Child Benefit is paid into your bank account every four weeks and the rates are as follows:
| Who is the Allowance For? | Rate (per week) |
| Eldest or only child | £20.30 |
| Each additional child | £13.40 |
These rates are fixed until 2014.
What if I earn over £50,000?
You may be liable to the imaginatively named High Income Child Benefit Charge (HICBC) if you or your partner have an individual income of more than £50,000 and one of you is in receipt of Child Benefit.
You then have a number of options:
- Keep receiving Child Benefit payments – you would have to pay the tax charge and also declare the Child Benefit by completing a tax return.
If you earn between £50,000 and £60,000 the tax charge will always be less than the Child Benefit.
- Stop receiving Child Benefit payments – this can be done online using the HMRC form. Doing so means you might not have to complete a tax return as would otherwise be the case.
If you earn over £60,000 the tax charge will always be the same as the amount of Child Benefit thus offsetting it.
Can I avoid the new tax charge?
It may be possible to avoid having to pay the High Income Child Benefit Charge by paying a pension contribution to reduce your income to below £50,000.
This is worthwhile considering as:
- You will be turbo-charging the tax relief – this is because you will receive tax relief at your highest marginal rate in addition to avoiding the High Income Child Benefit Charge.
- You will be saving towards a comfortable retirement.
- It is possible for another person to pay this pension contribution, for example, a grandparent.
What about entitlement to State Pension?
It is very important that you make the initial claim for Child Benefit for each child even if you decide not to receive it. This is so you can protect your entitlement to State Pension.
- Non-working parents caring for a child under 12 qualify for State Pension credits through their initial Child Benefit claim;
- Not initially claiming Child Benefit will stop the State Pension credits.
If you would like help in making a pension contribution or would like to discuss the interaction between pensions and Child Benefit, please do get in touch.
Telephone: 01249 700402
Email: matthew.kneller@fp-fp.co.uk
Disclaimer
This article contains the current opinions of the author and does not represent a personal recommendation. Information contained herein has been obtained from reliable sources but cannot be guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission from Fresh Perspective Financial Planning Ltd.