Budget 2012 - child benefit changesHigher rate taxpayers look set to lose out
14 March 2012
In the 2012 Budget, the Chancellor, George Osborne, is under pressure to modify rule changes that will see households with a 40% taxpayer lose child benefit from January 2013.
Child benefit changes in the pipeline
At the moment, child benefit is due to cease from January 2013 for households where there is at least one 40% taxpayer. For 2012-13, this is anyone with a taxable income of more than £34,370 (£42,475 before deducting tax-free allowance of £8,105 – see our guide to tax rates for more information).
The rule change stops child benefit being universal. It has been criticised as penalising families with a single earner, while ignoring households where both partners work. The argument is that a couple could earn £80,000 between them and still get child benefit, while a household with a single income of £43,000 would not get child benefit at all. In the 2012 Budget, Mr Osborne might consider softening the impact of changes by raising the threshold or graduating the loss of benefit.
Child benefit was frozen in the Chancellor's Emergency Budget of 2010. From April 2011 it has been set at £20.30 a week for the first child (£1,056 a year) and £13.40 a week for any subsequent child (£697 a year).
Child tax credit rules change too
Unlike child benefit, child tax credit has always been means tested – but in 2012 the upper income limit will be significantly reduced. From £41,300, it falls to around £26,000 for those with one child and £32,200 for those with two. Higher earners may still qualify if they pay for registered or approved childcare, are disabled or have more than two children.
As eligibility for child benefit is determined by taxable (rather than gross) income, it's possible for some on the borderline to reduce their taxable income by taking advantage of a workplace salary sacrifice scheme. Typically, this might involve receiving a lower salary in exchange for increased pension contributions or childcare vouchers.
Which? tax expert Ian Robinson said: 'Salary sacrifice won't influence many people's eligibility for child benefit, but for those just over the threshold it may be worth considering.'
Action point: Find out more about the changes in our 60 second guide to Child Benefit
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