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Business Tax  •  HMRC  •  Personal tax  •  Taxation

New child benefit rules force financial disclosures for spouses and partners

By RJP LLP on 27 November, 2012

We are living in an era of greater financial equality than in the past, which means that spouses or partners are more able, in these enlightened times, to be ‘discreet’ with one another over the exact amount of their earnings. These days, many couples prefer not to disclose salary details to their partner and where they do maintain a joint account, may simply do so for household budgeting.

This practice is a result of many years of growing equality, which has now been delivered a side swipe by the Treasury by the introduction of some rather over-complicated changes to child benefit payments. A by-product of these changes is that the income levels of many individuals will be made clear to their partner, whether they want them to or not.

The changes come into effect on the very strange date of 7th January 2013; if either you or your partner is in receipt of child benefit, you should review your position before that date and you should also be aware that child benefit will have an impact on the completion of your self assessment tax return for the year ending 5th April 2013.

New child benefit rules explained

 

  • If both you and your partner earn under £50,000 a year you will keep all of your child benefit payments;
  • If either you or your partner earn over £60,000 you will lose the child benefit in full; and
  • If you or your partner earn between £50,000 and £60,000 you will lose 1% of your child benefit for every £100 you earn above £50,000, so that once your income hits £60,000 you will have lost the entire child benefit.

The strange thing is that even if you or your partner earns in excess of £60,000, unless you take action to waive your entitlement to child benefit, you will continue to receive it as normal; then the Government will take it back from the highest earner as an income tax charge.

In many instances of course, the person receiving the child benefit will not be the highest earner, therefore there will be situations where one person receives the child benefit, and it is clawed back as a tax charge on their partner. It will also be clear to each who is the higher earner!

In this situation it may be preferable to stop the child benefit payments altogether, and this can be done on the HMRC website.

What if you’re separated from your partner?

  • If you receive the child benefit but earn less than £50,000, even if your ex-partner earns over £50,000, you will be able to keep the payments in full;
  • If you earn over £50,000 but have separated from a partner who claims child benefit for your children, you will not have to pay the additional income tax charge;
  • If you and your partner separate after 7th January 2013, any additional tax charge for which you are liable will cease with effect from the date of your separation, provided you notify HMRC.

Tax tips – how to reduce your income and maintain child benefit

When calculating income levels for the purpose of child benefit entitlement, an ‘adjusted income’ figure is used. This is the amount of income received after allowable deductions. These deductions may be for trading losses, pension contributions, buying childcare vouchers through gross salary, or making charitable donations; all of which qualify for tax relief.

If you run your own company, then you are able to decide the level of income you take. You may also be able to equalise income between you and your partner.

These planning routes are also valid for those earning more than £100,000 and looking to avoid losing their personal allowance.

Using salary sacrifice

 

Using salary sacrifice schemes for things such as pension contributions or the purchase of childcare vouchers can also help to reduce the amount of NICs payable.

If you have any questions or concerns about what you need to do between now and January 2013, please get in touch with us at post@rjp.co.uk

 

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