More than one million families are set to lose some or all of their child benefit after changes announced in the budget.
At the moment, child benefit is not means tested, so richer as well as poorer families are entitled to the payout of £20.40 a week for the oldest child and £13.40 a week for each younger child.
The benefit is a lifeline to many families: if you have two children, it can boost your household budget by nearly £2,000 a year. But it is costly for the government, so the rules are changing.
From next January, if you or your partner earns taxable income of between £50,000 and £60,000 a year, you will have to pay a charge of 1% of the amount of child benefit for every £100 above £50,000. In other words, if your taxable income is £55,000 you would lose 50% of your child benefit. Anyone who earns more than £60,000 gets nothing. (See this break-down of how much child benefit you’re entitled to.)
But there are ways to beat the benefit changes.
All you have to do is ‘sacrifice’ some of your salary and bring your taxable income below the £50,000 threshold.
For example, if you earn £60,000 a year, you could sacrifice £10,000 into your pension, bringing your annual taxable income down to £50,000. You also get tax relief on pension contributions, so it’s a double saving.
If you don’t want to invest in a pension, find out if your employer offers childcare vouchers. Basic-rate taxpayers can sacrifice £2,916 a year for the vouchers, which can be put towards the cost of childcare. Higher-rate taxpayers are entitled to vouchers worth up to £1,456.
You can also give up some of your salary in exchange for other perks, such as extra days off or a company car. So if you are near the £50,000 threshold, it is worth talking to you employer to explore ways to cut your income.
Naomi Caine was editor of The Sunday Times Money section for six years before she moved out of London to bring up a young family. She now juggles two children with a freelance career, and has written for a variety of publications, including MSN, Yahoo, The Times, The Sunday Times, Which? Money, Money Week and The Sunday Herald.