Experts are calling for “urgent reform” of the existing Child Benefit system as parents still face being slapped with a 53 per cent tax charge.
In last week’s Spring Budget, Chancellor Jeremy Hunt announced an overhaul to the benefit including increasing the high child benefit threshold to £60,000 and halving the rate at which it is withdrawn.
Prior to these changes, a parent with two children on an income between £50,271 and £60,000 would pay an effective tax rate of 63 per cent.
This is under the High Income Child Benefit Charge which charges taxpayer or their partner for claiming the entitlement if have an individual income that is over a certain amount.
While this overhaul has been welcomed, tax experts are warning households could still be hit with a pricey levy.
With Hunt’s Budget in place, someone earning between the new threshold of £60,000 and £80,000 will now pay 53 per cent in tax.
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Parents still face a sizable tax charge despite recent changes to Child Benefit
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John Bull, the recently appointed Head of Private Client services at Blick Rothenberg, believes Child Benefit in the UK is broken.
He explained: “A family of four with one working parent earning £65,000 will be almost £3,000 better off following the Spring Budget changes.
“But since the Coalition Government came into power in 2010, the same family is only £3,500 better-off in 15 years which equates to around £230 per annum.”
“Although the Spring Budget changes are most welcomed, the new £60,000 threshold is still £7,000 short of where it needs to be had it increased in line with inflation”.
According to the tax expert, the current system in place creates high marginal rates of tax which are not suitable for 2024.
Bull recommends that entitlement for Child Benefit should either be means-tested, universal or taxable as income.
According to the Chancellor, the pending changes to the benefit take 170,000 people out of paying the charge all together.
These reforms will be implemented in April 2024 to coincide with the new tax year.
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Jeremy Hunt announced reforms to Child Benefit but experts believe this overhaul does not go far enough
PAOverall the Government estimates almost half a million (485,000) hard-working families would save £1,260 in tax in 2024/25.
Analysts have cited that the rules surrounding Child Benefit have been historically unfair on single income families.
This is because these households are impacted once the breadwinner’s income exceeds the tax charge’s threshold.
In comparison, dual-income families can earn a combined income of £99,998 without being affected, provided their salaries are £49,999 each.