If rising food prices and an increase coming in on our heating bills wasn’t enough for families the withdrawal of child allowance next January is yet another blow. For those families earning over £50,000 a year between them the benefit starts to reduce by 1% for every hundred until at £60,000 it’s completely gone. This means the family would lose £20.20 for the first child and £13.40 for any other children.
As an example a family with three kids with an income of £60,000 will lose over a year £2,449, which is the cost of a reasonable family holiday.
There are things that can be done to ensure that the benefit is not lost, if the family is on or near the amount where the benefit is lost. The first is to look at salary sacrifice; this is where the person elects to give up salary to have this paid into a pension by the employer.
If we look at the family above, who are on the £60,000, then sacrificing £10,000 into a pension reduces the earning to the £50,000 threshold so child benefit is not lost and also has the additional benefit of £4,000 saving in income tax and also a £200 saving in National Insurance. The employer also saves National Insurance and may be willing to invest this into the pension as well giving the contribution a boost. The other benefit is that of boosting the pension pot which for most of us is no bad thing.
The other way that some people could keep the benefit is to use dividends from a company they are a shareholder in rather than salary. This may be good to explore where the wife or husband is employed in a family business earning below the higher rate threshold and where the salary could be switched to dividends.
It makes sense that if you are in danger of losing this benefit and your incomes are around the thresholds that you speak to Wades about some planning. So get in touch before January to look at the options.