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How to survive the child benefits cull

The government’s austerity drive is extending ever more widely – and includes cutting into child benefit and several other family welfare schemes. This is naturally of concern to many parents.

From 2013, the government will withdraw child benefit from higher-rate taxpayers. Next year sees the end of the child trust funds – resulting in a loss of £500 in government pay-outs. The £190 health in pregnancy grant is also being axed. And higher-rate tax payers will also get fewer tax credits next year.

But all is not lost; there are some ways you may be able to avoid the impact of these cuts.

Salary sacrifice is a great way to minimise your National Insurance Contributions (NICs). From next April, the rate is rising from 11% to 12% of earnings for people on more than £43,888. On top of that, depending on your income, salary sacrifice could help you keep your benefits. Making investment decisions yourself through SIPPs may be a better option than paying a pension fund manager.

A salary sacrifice scheme allows you to swap part of your pre-tax income for childcare vouchers, medical insurance, or pension contributions. Tax calculations are conducted after, not before, the salary sacrifice. Sacrificing some of your salary could bring you back into the basic band. So you can save on tax, and protect your benefits.

For most of us, the best salary sacrifice option is to boost pension contributions. Writing in the Telegraph, tax expert Colin Jelley said: “From 2013, someone earning £45,000 with two children stands to lose £1,752 each year in child benefit, using current rates.”

Childcare vouchers are another good option. If your employer is signed up to a childcare voucher scheme, you can swap up to £243 a month of your pre-tax salary for either electronic or paper vouchers. But these vouchers aren’t immune to government cuts. From April 2011 they will be means tested.

At Welbeck Tax Solutions , we are experts in tax planning. It’s part of our job to help mitigate changes such as these. So if you’re concerned about the child benefit cuts and would like to get some in-depth advice, talk to us today.

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