Attention families with children
From 7th January 2013 one in seven households receiving Child Benefit will be effected by a claw-back of the benefit through the tax system.
Child Benefit is going to be progressively withdrawn from households where one partner earns more than £50,000 a year. The claw-back is at the rate of 1% for every £100 above this threshold.
For example, if you earn £56,000, you will lose 60% of the Child Benefit currently paid to your household. So, if one person earns more than £60,000 then all Child Benefit is repayable.
The claw-back is collected through the tax system as a ‘high income benefit charge’. This will be done on your self-assessment return or PAYE if you do not.
However, like many other areas of tax there is an anomaly. If one person earns £90,000 a year and the partner has no income at all then you lose all your Child Benefit. But, if you both earn £45,000 a year you would still receive the full Child Benefit with no restrictions.
There are tax planning opportunities including making additional pension contributions and transferring income generating assets into joint names so that you share income equally between you.
If you are self-employed, you could consider entering into a partnership so that business profits are shared between you. If you trade through a limited company, you could make your partner a shareholder and possibly share dividend income.