There's been lots of coverage in the news about changes that will claw back Child Benefit from some higher earners, starting from January. HMRC are also sending out letters to all the people they think might be affected. The changes are pretty illogical and weird in many respects, but we're stuck with them, so here's how they'll affect you:
- If the higher earner of you or your partner has income of more than £60,000, you'll lose all of your Child Benefit - either the higher earner can repay it via their Self-Assessment Tax Return, or the recipient can just not claim it to begin with - but if your circumstances change you'll need to remember to reinstate your claim.
- If the higher earner of you or your partner has income of more than £50,000 but less than £60,000, you'll lose some of your Child Benefit - the higher earner will repay it via their Self-Assessment Tax Return.
- If the higher earner of you or your partner has income of less than £50,000 then you keep all of your Child Benefit.
- If you don't get any Child Benefit to begin with, then none of this makes any difference to you!
So, if you're in categories 1 or 2, is there anything you can do
about it? Well, making personal pension contributions effectively
reduces your taxable income, so you might consider that - as long as you
can afford it and it fits with your retirement planning. Charitable
donations would do the same, although of course you'd be giving up the
money forever that way. Some people might even consider earning less -
you may be less inclined to do extra work or overtime if the tax you pay
on the extra income is effectively closer to 60% than it is to 40%.
If you want to discuss and understand further the impact of the changes on your finances, you should talk to your accountant (if you have one!). Of course, if we prepare your personal tax return for
you, then we'll be discussing it with you in April in any case.
Comments