This article focuses on the reduction in child benefit for higher rate income tax payers in the UK, and ways you could consider action to continue to be eligible for this benefit.  Taking action in this area could allow you to gain substantial benefits.

The child benefit problem

From the 2013 tax year, those who have income liable to income tax greater than £50,000 will have their child benefit withdrawn gradually through a tax charge.  For every £100 of income above this figure the child benefit will effectively reduce by 1%. Once your income reaches £60,000 you will lose child benefit entirely. This raises the thorny issue that 2 people earning just below the £50,000 threshold will not be affected, but 1 earner earning slightly over the threshold will be affected.

Possible solutions

Self-employed If you are self-employed you should be in a position to work with your accountant to manage your income levels to keep you underneath the threshold.  Of course, you may already be under it anyway through the use of dividends. Employed You could consider making additional pension contributions so that you bring your net income level below the £50,000 limit.  Depending on your situation this could have the effect of both boosting your pension fund, plus reinstating the child benefit. For example.  If your income is £60,000 you could make a contribution of £10,000 to your pension fund to bring you just under the £50,000 limit.  This will reinstate your child benefit and boost your pension fund.  Thus £10,000 would go into your pension fund, although this would only cost you £6,000 net.  Once you add back in the child benefit for say 2 children, £10,000 into your pension scheme might have actually cost you £4,247. Of course, the cost of this would outweigh the savings of child benefit but it is worth considering if you were planning to make pension contributions in any case. You can also reduce your income in other ways such as by donations to charity via gift aid, or by using certain non-income producing investments. Photo credit: Flickr>Pink Sherbet Photography

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