Thursday, 19 January 2012

Dangers of axing Child Benefit

Anyone who wants to understand the implications of the government's plan to axe Child Benefit for higher rate taxpayers should read this note from the Low Income Tax Reform Group (plus read my previous note here).

It points out the "huge administrative complexity" involved in introducing a tapering system to prevent families suddenly losing thousands of pounds after a small increase in income takes them over the higher rate threshold.

It warns that "independent taxation could become a thing of the past" because the benefit claimant, usually the mother, could have to be assessed alongside a partner paying 40p tax.

It says the new system could become a "tax on marriage" because a single mother would have to think twice before starting a relationship with a higher rate taxpayer.

And it warns of the danger of having to claw back overpayments of Child Benefit because it may only become clear that a family has a higher rate taxpayer after months have gone by.

Now that the higher rate threshold is being reduced to pay for increases in the personal allowance, many taxpayers have no idea that they are joining the 40% club.

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