Child benefits are currently paid out at a rate of £20.30 per week for the first child, and £13.40 for each subsequent child, with an increase planned for the 2014/2015 tax year to £20.50 and £13.55. These benefits are claimed by many families for all children under the age of 16 and in some cases up to the age of 20.
The new High Income Child Benefit Charge however puts these benefits at risk for many families, triggering a drop in annual household income of up to £1,752 at current rates for those with two children, or up to £2,449 for those with three.
Aimed at those who earn £50,000 and above, the High Income Child Benefit Charge was introduced on 7th January 2013 and may already have affected families for the tax year which ends 5th April 2014.
Rather than stopping giving the benefit at source the charge aims to claw the cost of the benefit back through increased taxation. This has led to some confusion, with families spotting nothing unusual in their payments and then receiving higher than expected tax liabilities.
For 2013/2014, the taxation will have wiped out 100% of the benefit for those earning £60,000 or above, whilst those in the £50,000-£60,000 income bracket will have been taxed 1% for every £100 over £50,000 they earn, to a maximum of 25%.
A drop of £33.70 per week might not sound like a lot to some, but losing £1,752 across the year for a family with two young children could be significant for many.
What can be done?
As with many areas of taxation, proper financial planning can help to mitigate the effects families may experience from the High Income Child Benefit Charge. Very simple actions, such as contributing to a pension, can help to mean you lose little or none of your current income, putting your family in the best possible financial position.
If you believe you are at risk of being caught by the High Income Child Benefit Charge please get in touch with one of our advisers, who will be more than happy to assist you.