Currently, parents can receive child benefit of £1,056 per annum for their first child and £697 per annum for each additional child.
However, the rules changed recently. Now families lose some of this benefit if one of the parents earns more than £50,000 in a tax year. The full benefit is withdrawn if either parent earns more than £60,000.
Therefore, if you can control the timing of your income, it is worth planning the timing of this income if you are near the £50,000 threshold.
For example, if you own a business and were thinking of paying a bonus/dividend in March, will this take you over the threshold? If so, you would have to pay back some (or all) of the child benefit you have received since 6 April 2012. If you have more than one child, this could cost you a large sum of money.
Therefore, you may want to delay the bonus/dividend until after 6 April and protect this year’s benefits.
Other methods to reduce your income
The income used to assess Child Benefit will be your “net” income. This means that, even if you earn more than £50,000, you can avoid losing the benefit by taking steps to reduce this “net” income. For example, pension contributions are deducted from your income to calculate net income. Similarly, childcare vouchers purchased through an approved scheme are deducted.
Splitting your income
The child benefit repayment applies if either of the parents earns more than £50,000. If both parents earn £49,999, there is no repayment.
Therefore, you may want to consider splitting income where possible to keep both parents below the threshold. For example, if one parent earns £60,000 and the other £nil, the full child benefit will be repayable to the government. If you both earn £30,000, you get to keep the cash.
As with our tip on using your personal allowance, there are details to be considered here. If in doubt, please ask us.
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