Shel­ter child ben­e­fit from tax au­thor­i­ties

Birmingham Post - - PERSONAL FINANCE -

That’s un­der­stand­able, es­pe­cially as child ben­e­fit is not with­drawn but con­tin­ues to be paid, in­stead be­ing clawed back in ex­tra tax.

Which is how so many peo­ple get caught out.

Child ben­e­fit is cur­rently worth £20.70 a week for the el­dest, then £13.70 a week for each ad­di­tional in­fant.

But un­der the Govern­ment’s High In­come Child Ben­e­fit Charge (HICBC), which was in­tro­duced in 2013 and af­fects around 1.1 mil­lion fam­i­lies, you start los­ing part of it if ei­ther you or your part­ner have an “ad­justed net in­come” of more than £50,000.

Ad­justed net in­come is your to­tal tax­able in­come – the likes of your ba­sic salary plus ben­e­fits, rental in­come, share div­i­dends and so on – mi­nus things such as pen­sion con­tri­bu­tions and gift-aided do­na­tions to char­ity.

The tax is one per cent of the amount of child ben­e­fit for each £100 of in­come on a slid­ing scale be­tween £50,000 and £60,000. For those earn­ing more than £60,000 the charge is 100 per cent – in ef­fect, they re­ceive no child ben­e­fit.

So what you need to do is try to get your ad­justed net in­come back to £50,000. How to do that? Any con­tri­bu­tions made into a com­pany or per­sonal pen­sion scheme will re­duce the fi­nal amount of ad­justed net in­come.

Royal Lon­don gives the fol­low­ing ex­am­ple.

Tony has a tax­able in­come of £58,000 and his wife Lucy has no in­come. They have two chil­dren which re­sults in Lucy re­ceiv­ing child ben­e­fit of £1,788.80 p.a.

Since Tony’s in­come is £8,000 over the limit, he’ll face a tax charge of 80 per cent of £1,788.80 = £1,431.04.

As a cou­ple, the over­all value of the child ben­e­fit has there­fore been re­duced to £357.76 (£1,788.80 - £1,431.04).

But if Tony makes net con­tri­bu­tions to­talling £6,400 in the tax year to a per­sonal pen­sion plan, this will be grossed up to £8,000. This means that his ad­justed net in­come falls to £50,000 and no charge is payable.

By con­tribut­ing £6,400, he’s saved £1,431.04.

As­sum­ing all of the pen­sion con­tri­bu­tion lies in the higher rate tax band, he’ll also be able to claim an ad­di­tional £1,600 in tax re­lief (20 per cent of £8,000) through his tax re­turn.

Al­ter­na­tively, you could achieve the same re­sult by pay­ing ad­di­tional vol­un­tary con­tri­bu­tions (AVCs) into your oc­cu­pa­tional scheme.

What then of child­care vouch­ers?

You can re­duce your ad­justed net in­come by opt­ing to have some of your salary paid in the form of these vouch­ers if your em­ployer of­fers such a scheme.

You can take up to £55 a week of your wages as vouch­ers, on which you do not pay tax or na­tional in­sur­ance.

Be warned though – from Oc­to­ber 4, work­place child­care voucher schemes will close to new ap­pli­cants.

Un­for­tu­nately, you may be too late as many em­ploy­ers will re­quire a month’s no­tice to start the de­duc­tions from your payslip. Worth con­tact­ing your pay­roll de­part­ment ASAP to find out. Trevor Law is man­ag­ing di­rec­tor of East­cote Wealth Man­age­ment, char­tered fi­nan­cial plan­ners, based in Soli­hull. Email: tlaw@east­cotewealth.co.uk The views ex­pressed in this ar­ti­cle should not be con­strued as fi­nan­cial ad­vice

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