In an effort to save £1.5 billion in the next year, HMRC have introduced the HICB. As of the 7th January 2013, child benefit will be means-tested; taxpayers with an income greater than £50,000 who also receive child benefit will need to decide whether to stop receiving these benefits, or pay a charge via self-assessment. By now, you will have made this decision, and today, SimpleTax is here to explain ways we can beat the changes to child benefit. So, here’s how you can soften the blow:
Top up your pension
If, for example, you earn £53,000, why not set aside £3,000 for your pension? Decreasing your earnings to £50,000 makes you eligible for full child benefit; Hooray! Oh, and there’s the added bonus of a reduced income tax charge. Paying money into your pension results in a lower income tax bill; double hooray!
Salary sacrifice scheme
If you just miss out on child benefit, then this is a fantastic way to reclaim what is yours. You can ask your employer to run a salary sacrifice scheme, where you can replace your taxable earnings with non-taxable benefits. You can choose how to receive these benefits, for example, childcare vouchers, or your workplace pension scheme. If you reduce your salary below £50,000 you are entitled to receive full child benefit.
Transfer your assets
If your spouse or partner has a lower income than you, then you could always transfer your assets to them. Transferring your savings and investments will reduce your taxable income.
Put it in a high interest ISA
If you chose to keep receiving child benefit, put the benefit in a high interest ISA. This way, your benefit will earn interest, offsetting the self-assessment tax charge.
Watch your spending
This isn’t a way to ‘beat’ the child benefit, but it certainly does soften the blow; if you did lose your child benefit, you need to watch what you spend. Where could you spend less money? Do you really need everything you repeatedly buy on a weekly basis? Things like this will hopefully offset the loss of child benefit.
Give to charity
If you’re feeling extra generous, why don’t you give some money to charity? If, for example, you earn £51,000, giving £1,000 will reduce your net income to £50,000. Whilst also doing a very good deed, giving this money to charity can also make you legible to full child benefit.
There ARE ways to beat the child benefit charge, and hopefully SimpleTax has helped you realise this. The great thing is, you can mix and match these tax savings tips to suit your specific needs. For example, you can ask your employer to run a salary sacrifice scheme, transfer some of your assets to your spouse and also watch your spending. Options are in an endless supply and can be tailored to specific incomes and needs.