Be aware of new rules governing child benefit

Be aware of new rules governing child benefit

As you may have seen in the news the Government’s controversial scheme to restrict child benefit paid to supposedly “better off” families came into effect from 7 January 2013.

From this date any individual whose income is more than £50,000 who is either in receipt of child benefit or whose partner is entitled to receive child benefit will face the prospect of having to repay some or all of the child benefit they or their partner has received.

It is important to note that only the individual income has to exceed £50,000 so for example if both partners have income of £30,000 each and as such their joint income exceeds the threshold of £50,000 their child benefit claim will be unaffected as neither partner has an individual income of more than £50,000.

For those individuals who are affected by this benefit charge there are two options available to you:-

• You or your partner, if they are in receipt of child benefit, can opt to no longer receive child benefit payments and therefore the benefit charge would not apply.
• You or your partner can continue to receive child benefit payments as usual but the partner with the higher income would then have to declare these payments by completing and submitting a self assessment tax return each year.

This means that many more people who have not needed to complete tax returns in the past will now be required to register for self assessment by no later than 5 October 2013 otherwise they may have to pay a penalty. The onus is on the individual to notify HM Revenue & Customs that they need to declare these payments and you should not expect to be automatically issued with a tax return just because your income exceeds £50,000.

In addition any excessive child benefit payments received since 7 January 2013 will need to be repaid to HM Revenue & Customs by 31 January 2014.

Another point worth noting is that the partner who has to pay this charge is not necessarily the person who has received the child benefit payments but it is only the person who is entitled to the child benefit that can elect for these payments to be stopped.

As such you could have a situation where one partner is receiving child benefit yet the other partner has to pay the charge and is unable to stop these payments. Alternatively you could live with a partner who is receiving child benefit for a child who is not your own child but regardless of this if your individual income is more than £50,000 you will still have to pay the charge.

To further complicate matters some individuals may find themselves having to pay a charge for a child who lives with them but somebody else is entitled to receive the child benefit for that child.

There are steps you can take to try and preserve the child benefit. One of these is to consider making or increasing your personal pension contributions to reduce your “net adjusted income” thereby potentially reducing your liability to the benefit charge.

Another way is to transfer income to your partner. This can be done by transferring income producing assets, such as rental properties, to your partner so that ideally you both have income of less than £50,000 and are able to keep your entitlement to child benefit.

There are other options available to reduce your income without losing it entirely and these are dependant on your individual circumstances and requirements.

Article as printed in the Retford Times 11 April 2013 – Author Neil Roberts.

Technical content correct at time of publishing.