The child benefit system is being shaken up, which could see millions of UK families lose their child benefit. The new government reform comes into force in January 2013 and will reduce entitlement to around 1.2 million families.
The new rules mean that families where one parent is earning more than £50,000 a year will no longer be able to make a claim for the full child benefit.
The government capping system will see families where one parent is earning over £60,000 have their child benefit entitlement scrapped entirely.
The manner in which these new rules are being put into action is being finalised by the UK tax authority at the moment. However, as the date draws nearer many families are starting to worry.
The Chief Executive of Child Poverty Action Group, Alison Garnham, said:
“We used the government’s own data to discover that 20,000 children are in households that will be pushed into net incomes comparable to poverty by the policy.
“On typical mortgages some of these families will have less than £10 a day per family member for all their food, clothes, transport, energy bills and other outgoings, which is comparable to families currently below the poverty line.”
The change means that families with three children and at least one parent earning over £60,000 will lose about £2,450 a year. However, there are some anomalies. For example, a household where both parents earn £49,000 will keep their full benefit whilst neighbours who have one parent who earns £60,000 or more will lose all of theirs, regardless of how many children they have.
Here is a quick guide to how this will affect you:
What is child benefit?
Child benefit is a tax-free sum from the government designed to ease financial hardship on parents. Even though the UK is technically out of recession, many are still feeling the pinch.
The cost of living has sharply risen in the last five years along with inflation and unemployment levels plunging millions into poverty.
The cost of raising children has increased and child benefit payments could help to ease the financial strain on parents.
Under the current system, one parent can claim £20.30 per week for their eldest child and then £13.40 for their other children thereafter.
Payments apply to all children up to the age of 16 and, in some cases, until they are 20 years old.
The system, which is run by HM Revenue and Customs (HMRC), pays out to almost 7.9 million families with around 13.7 million children.
Millions of families are expected to receive letters from HMRC this week explaining how the new high-income child benefit charge takes effect from 7th January 2013.
How does it work?
The new system only affects households that currently claim for child benefit and one of the parents earns over £50,000. The new rules mean that if one parent earns more than £60,000 they might have to stop claiming child benefit altogether, or persuade their partner to stop doing so, in order to prevent the tax authority simply re-claiming it.
If one partner keeps claiming child benefit, the higher earner will have to admit this in a self-assessment form. Those earning between £50,000 and £60,000 will see the amount of child benefit gradually reduced.
It’s important to note that the higher earner will need to know if their partner continues to claim for child benefit, as the higher earner will be taxed. HMRC will expect couples to talk to each other and discuss this serious financial issue to see if they must be taxed.
If the couple has split and live apart there are still options. Both parents might try to claim for the benefit, however, only one will get it.
If somebody is responsible for a child, they are normally entitled to the benefit. In many cases, this is usually the parent whom the child or children live with. However, the other parent can get child benefit even if their child does not live with them.
This typically only happens when they pay towards upkeep and maintenance or what they pay is the same amount as the child benefit, so they are not actually profiting.
Those affected need to decide whether to keep receiving child benefit and pay the tax charge through the self-assessment form or stop altogether.
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