Higher-rate tax changes to exclude an extra 230,000 households from child benefit

Child benefit reforms planned for 2013 mean a double blow for many families

Child benefit reforms planned for 2013 mean a double blow for many families

700,000 people will be forced to pay higher-rate tax next year after the Government’s decision to lower the 40% tax threshold. Many will suffer a double blow as the change in their tax status will soon mean they no longer qualify for child benefit.

The salary limit will fall from the current £43,875 to £42,475 from April 2011, dragging many teachers, nurses and other professionals into a higher tax band that will typically mean an extra bill of £80 a year.

Mike Warburton of accountants Grant Thornton has predicted that approximately 700,000 people will be affected by the plans, bringing the present figure of 3 million higher-rate taxpayers to as high as 3.7 million in 2011/12.

The Government’s recent decision to axe child benefit for households with at least one higher-rate taxpayer means an estimated 230,000 extra parents will also lose out on benefit payments. The child benefit reforms are scheduled to come into force by 2013. Child benefit is worth as much as £1,752 a year for a two-child family until they are 16, or 19 if they remain in education.

Some financial analysts have also anticipated that the Government will continue to lower the threshold each year by year, with Mr Warburton saying the number of higher-rate taxpayers could hit six million by as soon as 2015.

Natasha Terbraak of MyEggNest.com, the UK’s leading independent children’s savings website, argued that the reforms were unfair, especially in tandem with each other.

“The changes mean a household with only one-earner of just below £43,000 could lose out on thousands of pounds of payments. A family with multiple children and only one working parent on this salary should arguably not be considered well enough off to lose the extra income child benefit gives them.”

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