Page 45 - Phonebox Magazine February 2013

As has been well publicised, 7th January 2013 saw the introduction of means testing on Child Benefits. From this date, where either the current claimant or their partner has ʻnet adjustedʼ income above the level of £50,000, Child Benefit will be gradually withdrawn. In this context, partner refers to spouse, civil partner and those living together as if spouse or civil partner.
the key elements that ʻadjustsʼ your income is pension contributions. Whatever level of gross payment you make into your pension, this is taken off your income level. Therefore, if the highest earner in a family has a salary of £55,000 but makes pension contributions of £5,000, the ʻnet adjustedʼ income will be £50,000, thereby allowing them to still receive the full level of Child Benefit.
The benefit is reduced by imposing a Child Benefit Income Tax Charge equal to 1% of the claimantʼs Child Benefit for every £100 of income above £50,000. This will mean that all the benefit is lost once income reaches £60,000. The tax charge is payable by the higher earner and is collected through Self Assessment. If you prefer, you can instead opt out of receiving Child Benefit. This legislation is estimated* to now require the completion of 500,000 more tax returns and 700,000 families will no longer receive any Child Benefit. For a family with three children, at the current rate this equates to a loss of £2,449.20 a year.
For earners between £50,000 and £60,000 there was already the incentive of 40% tax relief on pension contributions but, for parents receiving Child Benefit, there is now the additional benefit of the savings in the Child Benefit Income Tax Charge. For a parent with three children this equates to 24.5%, resulting in effective tax relief of 64%.
However, there are measures that some families can take to reduce the effect this legislation has upon them. It is important to remember that the basis of the calculation is on ʻnet adjustedʼ income, which is not the same as the level of income you actually get paid. One of
This new legislation is going to affect many families but it is possible to mitigate it. If you would like to discuss your current financial arrangements or have questions concerning the changes, then please call us. Remember, initial meetings are free and we are happy to come to see you in the comfort of your own home. See our advert below.
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...in a recent survey by Age UK, it estimated the the effect of inflation on those over 55 was higher than the rest of the population?
The index, known as Silver RPI, shows that over 55’s have seen an 18% rise in living costs between September 2008 and September 2011 – almost 5% more than the general population. This means that they are now, on average, £978 a year worse off than official measures recognise.
If you are concerned about the real return on your savings or the level of income you receive, why not contact Advison and see how we may be able to help you. Remember, initial meetings are always without cost or obligation.
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Reduction in Child Benefit – can you avoid it?
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* source – AEGON December 2012
Phonebox Magazine 45