My wife asked me the other day about this while reading a lot of conflicting comments on one of her online “baby forums” – there seems to be a lot of confusion around this.
What is it?
Child benefit is currently paid at £20.30 for the first child and then £13.40 for each child after that. It lasts until each child is 16, or 18 if they are still in full-time education, or even 20 years old in some cases.
If one person in your household earns more than £50,000 you will start to lose part of your child benefit at the rate of 1% per £100 of income over £50,000. Clear as mud? In a nutshell, once you earn £60,000 you lose your child benefit. You can either opt out of child benefit or choose to keep the child benefit and pay a new tax called the High Income Child Benefit Charge. If you choose to pay the new tax then you’ll have to register for self assessment (if you don’t already complete an annual tax return). If you don’t already complete self assessment then you have until 5th Oct 2013 to register for self assessment and until 31 January 2014 to pay the new tax charge. You can calculate your potential tax charge here.
What if you’re a stay at home parent?
If you were already receiving the child benefit and your high earning spouse decides to opt out of the benefit rather than pay the tax charge you will still get National Insurance credits which will count towards your state pension. However a new mum who doesn’t receive child benefit due to her husband’s earnings won’t get these NI credits which will seriously impact her state pension. In this instance it is very important that you still complete a child benefit claim form to ensure that the National Insurance credits are given. This will also ensure that your child receives a National Insurance number before their 16th birthday and can protect other benefits such as Guardian’s Allowance.
If the high earner’s income fluctuates and could be more or less than £50,000 in any year then they should register for self assessment, pay the new tax if due and continue to receive the child benefit.
If you are affected by the changes then there are ways to reduce your income for assessment purposes and keep your child benefit – this can be as simple as increasing your pension contributions but I’d advise that you chat to a professional adviser because each of you will have different circumstances.
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Family Financial Planning and Independent Financial Advice in Coleraine Ballymoney Portrush Portstewart Castlerock
By David Gibson