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Child Benefit changes may bring four possible problems for some families
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New rules could lead to stay-at-home mums and dads losing NI credits
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NFU Mutual offers simple steps to help reduce the impact of the changes
The Child Benefit system will change from the 7th January 2013, but according to NFU Mutual many families will be worse off (HMRC estimate that 1.2 million families will lose some or all of their child benefit via a tax charge). Sean McCann, personal finance specialist for the Mutual highlights four possible problems some families might face and some simple steps to reduce the impact.
Four Possible Problems
1. Relationship status
The term ‘partner' is a very broad and includes married couples, civil partners as well as co-habiting couples. It's going to be difficult for the HMRC to keep track particularly couples who live together temporarily.
2. Annual incomes
The new rules could bring some unexpected problems for some families. For instance, if a person with an annual income of £60,000 or more were to move in with someone with three children then they could be landed with a tax bill of £2,449.20.
3. Not claiming benefit
Another major consideration is that, due to the new changes, some parents may decide not to receive child benefit any longer. Where one of them is a stay-at-home parent, they need to be careful that they don't lose out when it comes to their state pension as a result.
This is because for each week the stay at home parent is entitled to Child Benefit they qualify for a National Insurance credit, which contributes towards their basic state pension entitlement, up until the youngest child is aged 12. If they have another child and do not re-register for child benefit then they will lose out.
4. Not sharing information
The truth is that many couples don't share information about their income and finances, yet this co-operation is essential to the success of the new measures. For instance, if each partner has an income of over £50K, then the one with the higher income will be required to pay additional tax to repay Child Benefit.
Commenting on the ways families can reduce the impact of the forthcoming changes to Child Benefit, Sean said:
"For many parents and their partners who may be affected, there are simple ways to plan their finances to reduce the impact of the change. These new rules mean it's even more important for parents and their partners to take advice and reduce their effective rate of tax. The whole family may benefit as a result."
Simple Steps for Reducing Impact
1. Make a pension contribution.
If your income after pension contributions is less than £50,000, there is no charge. Salary sacrifice is an even more tax efficient way of doing this.
2. Share some of your taxable income with your spouse.
Moving income producing assets or investments such as bank or building society accounts to the spouse with the lower income may help to reduce a higher-earning partner's taxable income.
3. Use your ISA.
Make sure you use your ISA allowances. Income from ISAs is not considered to be taxable income.
4. Make your life partner a business partner.
If you own a business, you may be able to employ your partner, or bring them into a partnership to spread income around the family.
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