Parents affected by the high income child benefit charge should be aware that time is running out to take steps to avoid it or reduce its impact in the next tax year.
Under the new rules, which came into effect on 7 January 2013, families where at least one parent earns £50,000 or more will see their child benefit reduced by one per cent for every £100 of income between £50,000 and £60,000, with those earning more than £60,000 losing all their child benefit.
Although the benefit is still paid into taxpayers’ accounts, it is then clawed back in the form of the high income child benefit charge, liability for which must be reported to the tax office.
Understandably, many people will want to avoid or reduce this charge and depending on circumstances there are a number of potential ways in which to do this, including making an individual pension contribution to reduce your income to below £50,000, making a pension contribution via salary sacrifice or transferring investments which push your income above the threshold to your lower-earning partner.
Everyone’s situation is different, so it is important to seek professional advice before making any sort of decision to ensure that the strategy is right for you. However, in some cases, with the right planning, you could be up to £2,449 better off.
With the end of the 2013/14 tax year now fast approaching, time is very much of the essence if you want to take action to affect your current year’s position.
For more information, please contact our expert, Joel Harding