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Chancellor George Osborne today announced in his budget that 750,000 parents would hold on to some of their child benefit.
In the 2010 Conservative Party Conference, he first announced the decision to remove child benefit from January 2013 from any households containing a higher rate taxpayer (currently £41,150 as of today).
This decision attracted a great deal of criticism mainly for the fact that it seemed to contain a huge anomaly – namely that if one parent in the family is a higher rate tax payer earning let’s say £42,000 and the other parent is a stay-at-home parent earning nothing, then the family will not get any child benefit at all. However, if you look at another example of a family with both parents working and earning let’s say £39,000 EACH, totalling a household income of £78,000, then they’d still be eligible. Parents, critics and even Conservative party backbenchers thought this was madness.
So Mr Osborne promised to look at what he could do to improve upon this decision.
Today, he has therefore announced that from 7th January 2013, those families where 1 or both partners in a family earn more between £50,000 and £60,000, they will be charged a tax of 1% of the full Child Benefit award per £100 earned. So for instance if you earn £55,000 and your partner is a lower-rate taxpayer, then you will lose 50% of the full Child Benefit amount.
This news means that 750,000 parents who were going to lose all of their child benefit based on the previous decision, will now be holding on to some of it at least. But does the anomaly exist? Yes it does. It now means that a family containing 2 parents each earning £49,000, totalling £98,000 will receive full child benefit, whereas those with only 1 parent in the £50-60k bracket will be taxed a portion of the award. A Treasury source claims that the reason behind leaving this anomaly in the system ‘would have involved bringing millions of people into the tax credit system at considerable administrative cost, which was not considered a good use of money’.
Still confused about how this might affect you? Here are some things to bear in mind.
- You may be affected by this if you or your partner (or both you) is earning more than £50,000 per annum on 7th January 2013
- You do not need to do anything yet if you know that you will be affected by the change. The HMRC will write to all taxpayers who are likely to be affected by this change in the autumn with details of what to do.
- If you split from your partner who is a higher rate payer partway through a tax year, then you will only be liable to the tax for the period up until you split from your partner and not up until the end of the tax year.
- If you have recently joined your partner who is a higher rate payer partway through a tax year, then you will only be liable to the tax for the period since you’ve got together with your partner and not for the period of the tax year before this date
- If you decide to, you can choose not to receive the Child Benefit anymore, which would mean that you would not have to pay the tax on it. However, if you choose to do so, you should still continue to complete claims for any new children that you may have, even if you decide not to receive the Child Benefit for them. For every week that you are entitled to Child Benefit you could qualify for National Insurance credits which help to protect your entitlement to a State Pension in the future. You can get credits if you are entitled to Child Benefit for children aged under 12 years old. This is applicable until your youngest child reaches the age of 12.
For more information on this, please check out the HMRC site who have full details about both the 2012 Budget and Child Benefit.