Several hundred thousand families are to be better off, some by as much as £3,000, during the 2024-25 tax year after the government finally admitted that a child benefit measure brought in 11 years ago had not worked fairly.
A change to child benefit is just one of a raft of changes coming in on 6 April, the start of the new tax year, including a cut in national insurance for employees to 8% from 10%.
The high income child benefit charge was introduced in 2013 and means child benefit paid to higher earners is clawed back via the tax system. Since then the earnings threshold at which the tax penalty kicks in has remained frozen at £50,000 a year, causing more people to be hit by the charge.
However, in the budget this March, the chancellor, Jeremy Hunt, made a number of changes, including lifting the threshold to £60,000. This is one of a number of changes, both positive and negative for people’s finances, that take effect from Saturday.
The child benefit tax charge was originally announced by George Osborne in 2012, when he was the chancellor, and has long proved controversial. It affects more than a million families, who either have money clawed back by HM Revenue & Customs or who opt out of child benefit to avoid the penalty.
This week, Laura Trott, the chief secretary to the Treasury, said the budget changes meant the government was “ending the unfairness in the child benefit system”.
In addition to raising the threshold to £60,000 a year, the government has halved the rate at which the penalty is charged, so people lose all their child benefit only once they earn £80,000. Prior to the changes someone earning £60,000 lost all of their child benefit.
Another change taking effect on 6 April is a rise in child benefit, from £24 to £25.60 a week for the eldest child, or an only child; and a rise from £15.90 to £16.95 a week for each additional child.
That means the gain for someone earning £60,000 who has two children will be £2,212 in 2024-25. If that person has three children the gain is £3,094.
About 170,000 families with children would no longer be affected by the charge, and nearly 500,000 families would save an average of about £1,300 apiece in 2024-25, Trott said.
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The government wants to move to a child benefit system based on household, rather than individual, incomes by April 2026.
Here are some of the other changes taking effect on 6 April:
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The main rate of national insurance contributions (NICs) paid by employees falls from 10% to 8%. This follows a cut from 12% to 10% that took effect in January this year. The Treasury said the average worker earning £35,400 would save more than £900 a year due to both cuts.
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The main self-employed NICs rate falls from 9% to 6% and class 2 self-employed NICs are abolished. For many people, however, the ongoing “fiscal drag” from frozen personal tax thresholds will eat into a lot of these gains. By 2028-29 there are expected to be about 2.7 million more people paying the higher-rate tax of 40% than would have been the case if all tax allowances and thresholds had been linked to inflation, according to the Office for Budget Responsibility.
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People can now sign up to several Isas of the same type every year, provided the overall maximum Isa allowance is not breached. Millions of savers and investors have Isas. The two main types are the cash Isa and the stocks and shares Isa, and the maximum you can save in Isas is £20,000 per tax year.
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In terms of investments not in an Isa or pension, the dividend tax allowance has been cut from £1,000 to £500. That is down from £5,000 when it was introduced in 2016, said Sarah Coles, the head of personal finance at the investment platform Hargreaves Lansdown. “Investors face capital gains tax misery, too,” she said. This is paid on profits on investments outside Isas or pensions. The annual allowance has been cut from £6,000 to £3,000, “pushing it to its lowest level since the 1980s,” she said.
Source: theguardian.com
