Protect Child benefit - £50k+ Earners

On 21st March 2012 in the Budget the Government announced plans to withdraw child benefit from parents who earn higher levels of income.


This was justified by George Osborne with the statement that “all sections of society must make a contribution to dealing with the deficit.” He went on to say the welfare budget needed to be cut back because social security would consume one-third of public spending if left unchecked.

Until now, child benefit has been universally paid to families of all backgrounds. From January 2013, Households with one person earning more than £50,000 a year will lose some of their child benefit.

Child benefit had been due to be removed from all families with at least one parent paying the higher, 40% rate, of income tax - about £43,000 - from January 2013.

But Mr Osborne said he wanted to avoid a “cliff edge” effect - so it would now only be withdrawn when someone in a household earned more than £50,000, at a rate of 1% of the benefit for every £100 up until £60,000, when it would be cut entirely.

The benefit would only be withdrawn entirely from those where one partner earns more than £60,000 a year.

The benefit will be withdrawn gradually from those where one parent earns more than £50,000. Child benefit totals £20.30 a week for the first child, and then £13.40 for each subsequent child. There is no limit to the number of children that can be claimed for.

So, for a family with two children, one parent would receive £33.70 per week or £1,752.40 per year.

The equivalent in terms of earnings, taking income tax into account, would make it worth £2,190.50 for a basic rate taxpayer and £2,920.67 for a higher rate taxpayer.

Perceived problem

The government had planned to remove the benefit from households in which someone earns more than £42,475 in January 2013.

The perceived problem was an anomaly that a family with a single earner taking home more than £42,475 would lose child benefit, but a couple each earning slightly less than this could take home £80,000 and keep the benefit.

The other issue of debate was the “cliff-edge”. That meant someone earning £42,475 or below would receive the full child benefit. As soon as they earned £42,476, they would lose every penny of the child benefit.

To address this, the benefit will now fall by 1% for every £100 earned over £50,000. That means those earning more than £60,000 will lose the entirety of the benefit.

Entitlement under the original proposals

Some 7.8 million families receive child benefit, of which 1.2 million would have lost their entitlement under the original proposals. The number affected will be lower under the renewed plans.

Three million taxpayers earning over £50,000 will be sent letters in the autumn asking if they or anyone in their household receives child benefit - in order for some to be clawed back through tax from January 2013.

The income tax charge could be levied from monthly pay cheques, via people’s personal tax codes. Otherwise, the first tax bills for child benefit will have to be settled by the end of January 2014.

One possible solution

Brad and Angela have two children and receive child benefit of £20.30 per week for the eldest child and a further £13.40 for the youngest. (that’s the £1,752 mentioned previously). Brad’s salary is £50,000 and Angela’s is £60,000.

On Angela’s income, between £50,000 and £60,000 she will face income tax at 40% and an additional £1,752 (there’s that number again) due to the loss of child benefit, an effective rate of 57.5%

Now, what if Angela made a pension contribution? – to a good pension, mind, not one that has been in the news recently with high & hidden charges, but a decent scheme, with competitive charges, managed and monitored performance and with a financially strong provider – of £10,000.

Because basic rate tax relief of 20% is given automatically, Angela could write a cheque for just £8,000 or pay around £667 per month to get the £10,000 in. She will also receive a further £2,000 rebate when she submits her tax return. Therefore, the net cost of the £10,000 contribution is just £6,000.

In addition to the £4,000 tax relief, she will continue to receive child benefit. This is because the £10,000 pension contribution is deducted from her taxable pay, thus making her salary, for child benefit calculation purposes, £50,000.

So in this example, the family are £5,742 better off.

Psst… Got a Swiss bank Account?

UK residents with undisclosed Swiss bank accounts are facing a 41% payment of their Swiss assets to settle historical liabilities.

In 2011 the UK-Swiss ‘withholding tax agreement’ capped liabilities at 34% but after Germany successfully lobbied for and got 41% the UK Government raised too!

It applies to accounts with at least £7million in and will take effect from 1 January 2013.

The Retail Distribution Review (RDR)

On 1 January 2013, the Financial Services Authority is changing the rules about how financial advisers describe their services and the way consumers pay for them. These changes are commonly known as the ‘Retail Distribution Review’. At the end of this post is the FSA consumer leaflet for your further information.

You’re likely to hear more about this in the media over the next few months – I’ve mentioned it in previous correspondence and I wanted to make sure you heard about it, in full, from me first.

What the new rules mean

Whatever you may hear, these changes do not mean that you’ll have to pay any more in the future for our services or the products we recommend. The new rules are designed to make sure it’s clear what services financial advisers offer, how much we’ll charge you, and that you formally agree to all of this before we give you any new advice.

We’re not planning to make any major changes to either the services we offer, or how much you’ll pay for them because we already explain our services and how much they cost before we start work for our clients.

Therefore our relationship with you will not change in the future.

There’s no need for you to take any action

As you can read on the graphic below, I already provide a service entirely compatible with the new format (and have done for years and years), I hold the necessary qualifications for the business I advise on and I have a statement of professional standing in good order (see below).

Communications from providers

You may also hear directly from your product providers over the next few months. The changes to the rules and how financial advisers operate means they’re likely to make some of changes to their products, especially the older ones.

I should be notified of any changes providers plan to make to your products, so there’s normally no need to tell us if you receive a letter. But if they’re making changes that impact you and you have any concerns please get in touch straight away, I’ll be happy to clarify anything.

Making better financial decisions

What matters is that you do get in touch with me if your plans or circumstances change. Whether there’s been a major event in your life, or you’re reconsidering your plans for the future, we’re here to help you make the right decisions to help achieve your financial goals.

Making the right decisions today can make a huge difference in the future.

Below is the FSA (Financial Services Authority) consumer guide that I enclosed with the letter
 

Barclays, sigh...

Regular readers will recall my 2011 posts on Barclays and their crafty interest rates and bad practices in the investment world
http://greenfinancial.blogspot.co.uk/2011/01/banks-i-told-you-so.html

And here is a post from Facebook in March2011 about their crafty interest rates

Parking for visitors to Green Financial

Limited Parking is available on the driveway to our building. However it is first come, first served so we can't guarantee a place.

Parking is VERY LIMITED in Manfred Road itself due to our proximity to the tube station.


Parking bays which allow both permit holders and visitors to park are available in nearby roads, such as Schubert Road or across the Upper Richmond Road in Keswick Road. Look out for signs which say 'Permit holders or pay at machine'.


Parking is available in metered bays in most roads in the A2 zone


Parking can be paid by coin, card or by phone in various roads




You can print the image above, or email us and ask for a copy.

You can download the original map itself from the Wandsworth Council Parking website

http://www.wandsworth.gov.uk/info/473/street_parking-zones/218/parking_zones/10

Alternative parking

The Putney Exchange shopping centre is a 15-20 minute walk away.

There are numerous spaces there. The car park entrance is on Lacy Road, which is off Putney High Street.

The vehicle entrance to Lacy Road is next to Halfords and opposite Marks & Spencer.

Once parked, exit the shopping centre and make your way to the high street.

Cross the high street and head away from Putney Bridge towards Starbucks coffee shop and The C&G building society.

Now walk to the other end of Werter Road, passing Sainsburys.

At the end of Werter Road, turn right onto Oxford Road and walk to the top, arriving at the Upper Richmond Road with the Prince of Wales pub on your left. Turn left onto the Upper Richmond Road and head towards the tube railway bridge and East Putney Tube station.

Pass under the bridge, keeping the Wandswoth court building on your left. Continue for 3 minutes along this road until reaching Manfred Road on your left.

If you have any questions on the day, or are lost, or are having difficulty parking, please contact us and we'll help.

Please note our meeting room is on the first floor with stair access only.


If, for any reason, you are unable to climb 15 stairs, please contact us in advance in order that alternative provisions or arrangements can be made.