On 7 January 2013 the new changes relating to Child Benefit will take effect.

If any individual in a household claiming Child Benefit earns more than £50,000 per annum they will most likely lose some of that benefit. For that reason people earning around this level are looking for ways to reduce their income to save losing their Child Benefit allowance.

Much has been made of the unfairness of this system and there are many articles discussing this. However for those that want to know ways of reducing their income there is good news.

Just to confirm if you earn over £50,000 and claim Child Benefit in your house you may either continue to receive the full amount and complete a tax return each year where your entitlement will be assessed, or you can stop receiving it entirely. That is your choice. Assuming you do not want to give it up then you will have to complete a tax return so that HMRC can assess whether or how much you can receive. If an individual earns more than £60,000 per annum then you may lose your entitlement altogether.

However you can, if it is affordable to you, reduce your income by what is known as a salary sacrifice arrangement with your employer. This is where you sacrifice an amount of your salary that your employer then puts into a Pension for you. So for example, if you earn an annual salary of £52,000 you could have an arrangement with your employer whereby they pay you a salary of £49,000 and pay £3,000 into your pension instead.

This would of course be your own contribution and would be in addition to any money your employer is already paying in to your pension. In addition your employer may pay in the employer National Insurance contributions they save on not paying £3,000 of salary to you. So it could be beneficial.

However it must be affordable to you as you are effectively reducing your net pay. Also bear in mind that if you will be applying for a mortgage or remortgage any time soon then your income will be lower for assessment purposes.

However it is a legitimate way of reducing your salary and getting under the £50,000 threshold for Child Benefit purposes. It would also mean not having to complete a tax return.

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Blog by Jaskarn Pawar

Jaskarn Pawar is an experienced and award winning Chartered and Certified Financial Planner. He advises people all over the UK on financial planning and wealth management issues to help them reach solutions to fit their personal needs. You can contact Jaskarn on 01604 211234 or by e-mail on jaskarn@investorprofile.co.uk