Soften the Child Benefit blow with these tips
Tips to reduce the financial blow of the recent changes to Child Benefit.
If you earn over the £50,000 threshold your child benefit shall be affected from this year on. Many have stopped their payments altogether, but before you do the same, see if any of these tips may help you keep more of your Child Benefit. Here are some ways to reduce the impact of this new tax on Child Benefit payments.
- Place the money you receive in benefits into an ISA or Junior ISA. The benefits will be earning tax free interest for the year. When it comes to Self Assessment time next January, you pay the tax owing on the Child Benefit by withdrawing however much of the benefit owed back to HMRC and keep the interest, tax free.
- Spreading the wealth, so to speak, with your partner. If your partner (whether married or civil) earns less than £50,000, or not at all, you could consider moving assets into their name to reduce your gross household income. Savings and investments can be transferred from a spouse without incurring capital gains tax. Other business assets may be moved to your partners name to access their annual personal allowance which is £10,600(2015/16). Though, beware, these methods do mean that your partner now legally owns these assets!
- If your earnings are not far above the £50,000 threshold then reducing your take home, taxable income or any form of salary sacrifice, could mean you keep your Child Benefit. Examples:
- Increasing or beginning your pension contributions. Adding extra to your pension from your pre-tax income may bring it under the threshold, while helping you prepare for your retirement. If you are already using your maximum annual tax free pension allowance, check that you have used up past years annual allowances. If not, you can carry them forward. Check out our article on carrying forward pension allowances.
- Agree with your employer to take some extra unpaid leave, over the summer holidays for example. You would get to spend more time with your family, save on the cost of childcare while you are at home and bring your earnings below the threshold so you can hang on to all your Child Benefit.
- Childcare Vouchers are paid for out of pre-tax and NI income. For higher income earners £124 a month can be exchanged for vouchers to pay for registered childcare. This reduces your taxable income and pays towards your childcare at the same time.
- Find out if your employer offers any other Salary Sacrifice schemes such as the Cycle to Work or Bus schemes, which may help reduce your gross income.
- If Self Employed and you think you will be over the earning limit, you might be better off to stay in receipt of your payments. If circumstances change during the year, your earnings may take a drop and although you can begin to receive Child Benefits payments again, you can not back date them. Stopping payments does not change the fact that you still have to make a Self Assessment return. It would be advisable to have them paid into a separate account, preferable one earning you interest, so you can easily pay back what you owe at the end of the year.
To work out how much the Child Benefit changes will cost you, have a look at our new Child Benefit Loss Calculator.
Note, you should register for Child Benefit for every child you have, regardless of whether you choose to receive payments or not. Being registered has important National Insurance benefits. Once registered, stay-at-home parents still receive their National Insurance credits. If you decide not to receive Child Benefit payments, you still need to register, but tick the box on the form to say you do not want to receive payments. Otherwise you will have to buy back the National Insurance paying years you missed, while caring for your children, in order to qualify for your State Pension.