From January 2013 a person who earns more than £50,000 must advise HMRC if they receive Child Benefit personally, or if they are the higher earner of a couple where their partner receives Child Benefit. If you fall into this category you may be receiving a letter soon from HMRC advising you of the new tax charge.
We have summarised below the details of the tax charge that will apply from 7 January 2013:
A couple or partnership affected by these new rules comprises:
How can you mitigate this tax charge?
If the highest earner’s income is marginally over £50,000 the simplest way to reduce or eliminate this new tax charge is to reduce your income for tax purposes. One way that you can do this and retain benefit for your family is to make a lump sum contribution into your pension scheme. You will create higher rate tax relief on the contribution and save all or part of the higher Income Tax charge to recover Child Benefit. Depending on the number of children you claim for, this could create tax savings of over 70%.
Couples affected would be wise to seek professional help to ensure this new tax charge is kept to a minimum, especially for families where the highest income earner’s income only marginally exceeds £50,000.
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