Cash Clinic: Can I get back under the threshold and keep child benefit?

Q: I currently earn £46,500 a year and have two children of school age. I am extremely concerned by the recent announcement that child benefits will be removed from any family where one parent earns more than about £44,000 a year. Are there any measures I could take to reduce my income so I am still eligible for child benefits? Any advice you can offer would be much appreciated.AC, Newcraighall

A: The recent announcement by the Chancellor to remove the entitlement to Child benefit from 2013 for families where one parent is a higher rate tax payer is estimated to affect around 1.2 million people in the UK. The government set out plans to remove the benefit for any family where one of the partners has taxable income over more than 44,000 a year. However, a family with two earners each earning less than 44,000 would still qualify for Child Benefit.

Child benefit is a non-means tested benefit paid out to any family, regardless of income. For your first child you will receive a flat weekly amount of 20.30 topped up with a further 13.40 for your second child. Annually you are set to lose 1,752.40

Whilst limited details of the removal of child benefit have been announced, there are potentially a few ways in which an individual who marginally falls into the higher rate tax bracket may still, come 2013, be entitled to their full current entitlement to the benefit.

The Chancellor has stated that the cut-off point will be the higher rate tax threshold rather than a fixed monetary amount, thus keeping it simple and removing the need for complex means testing for each household. In some circumstances individuals may (to some degree) manage their annual income and tax position by considering some basic planning that could enable them to expand the basic rate tax band.

One way of doing this is to consider making either increased regular pension contributions (or a large one-off payment). Irrespective of an individual's tax rate, pension contributions attract tax relief of 20 per cent at source, however for higher rate tax payers additional income tax relief is claimed through self-assessment via the extension of the basic rate band.

In simple terms a single gross pension contribution of 2,000 would expand your basic rate tax band from 44,000 to 46,000 allowing you to become a basic rate tax payer and continue to remain fully entitled to your child benefit.

A second option that has a very similar effect in expanding the basic rate tax band would be to consider charitable giving through gift aid. Your basic rate band would be expanded by gross amount of the gift.

A final route may be to consider sacrificing a proportion of your salary to keep you within the basic rate tax threshold in lieu of your employers making a pension contribution to a pension arrangement for you.This is known as salary sacrifice and has become increasingly common as there are also potential National Insurance savings for both employers and employees.

Jason Hemmings is a wealth adviser within the private client and financial services department of HBJ Gateley Wareing

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