How Can You Avoid The Child Benefit Tax Charges?
Many families do not realise that a few changes can prevent them from losing out in the current child benefit changes taking place. Chaos is predicted as parents try to understand the recent child benefit changes that came into effect this month. The lack of comprehension apparent throughout families is being further fueled as HMRC fail to notify many child benefit recipients of the changes that will affect them.
The changes see a tax being charged on families where at least one partner earns £50,000. Where a parent earns more than £60,000 this charge will equal the amount of child benefit they receive, effectively canceling it out. This new tax will see many parents of relatively modest means paying higher marginal rates of tax than millionaires.
There is a way for some parents though to beat the child benefit tax charges. This can be achieved by the high earner in the family reducing their taxable pay and boosting their retirement savings. Deferring some income until retirement to keep your gross or taxable pay below the level at which Child Benefit will be withdrawn or lost altogether can also benefit families in other ways.Typically payments into pension funds are taken out of pre-tax income and so will avoid the Child Benefit and income restrictions. Considering paying into a pension could be worth considering especially with the tax relief given through Government subsidies. As an example for a basic rate taxpayer, for every £80 put into a pension, the Government puts in £20. The cost to a higher rate taxpayer of £100 in his pension fund is only £60 before costs.
