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Changes to child benefit

Child benefit is changing. The UK tax office is to send letters to one million households this week warning parents they may lose child benefit payments.

Households where at least one person earns more than £50,000 will have the benefit effectively reduced or stopped.

Letters will be sent to people who earn more than £50,000 who live at an address where child benefit is received to explain how their family is likely to be affected.

Officials say it means as many as 500,000 parents may have to complete self-assessment tax return.

The withdrawal will be gradual where income falls between £50,000 and £60,000. The amount of the charge will be 1% of the amount of child benefit for every £100 of income that exceeds £50,000. Where income exceeds £60,000 the charge will equal the full amount of the child benefit.

Child benefit currently stands at £20.30 a week for the first child and £13.40 for each child after that (for tax year 2012/13).

The change will cost families with three children and at least one parent earning more than £60,000 about £2,450 a year – the equivalent of in excess of £4,000 per year pay cut.

Payments to UK pensions can effectively be subtracted from income when calculating withdrawal of child benefit.

Contact us for more information and find out how these changes affect you.

Farrell Financial Planning offer independent financial advice on pensions and much more.

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