12:13 08 January 2013
Around 1.2million families will lose some or all of their Child Benefit payments this month but if you are among those affected, there are ways to help soften the blow.
The government first announced the introduction of a 'high income Child Benefit charge' in the March 2012 Budget.
With effect from January 7, 2013, the child benefit system will be means-tested. Families where both or one parent each earns less than £50,000 will keep their child benefit, and so need take no action.
However, families where one person earns £50,000 or more will lose some of their benefit, or all of it if they earn £60,000 or more.
Those who will lose their child benefit can either request to have it stopped, or they can continue to receive it over the year, and then declare it on a self-assessment tax return, so that the money can then be clawed back through the tax system.
Experts claim this second option is likely to be preferable for most, as remaining enrolled for child benefit can help you build up national insurance credits which can help protect your future state pension.
This is particularly important if you've stopped work to look after children full time.
Anyone earning between £50,000 and £60,000 who stands to lose part of their child benefit will again be paid the full amount over the year, and then again any money that they are no longer entitled to taken back in the form of additional tax.
Under the new system, around half a million people who haven't previously had to fill out a tax return will now have to do so.
We explain your options...
Take advantage of 'salary sacrifice' schemes
If you earn over £50,000 and have chosen to continue receiving Child Benefit and pay a tax charge at the end of the year, rather than stop it, you may be able to reduce this charge - or avoid it altogether - by using a 'salary sacrifice' arrangement.
So, for example, someone earning £55,000, who would stand to lose most of their child benefit, may want to consider making a £6,000 gross contribution into their workplace pension to bring their income down to £49,000. That way they could continue to receive child benefit in full.
Another option is to use some of your salary to buy childcare vouchers, medical insurance or to lease a car, again with the purpose of bringing your income down below the £50,000 threshold.
For example, basic rate tax payers signing up to the childcare voucher scheme now can buy up to £55 of vouchers a week. These can be used to pay for registered childcare at a nursery, playschool, childminder or after-school club.
Make up the money you stand to lose
If there is nothing you can do to hang onto your Child Benefit, then you should look at ways you can make up some of the money you will lose. Start by having a thorough look at all your finances and see where you can make savings.
For example, are you paying a steep rate of interest on your credit card? If so you should move your balance to a card with an extended 0% introductory rate on balance transfers.
The current market-leading balance transfer card is Barclaycard's Platinum balance transfer Credit Card which offers an introductory rate of 0% for a massive 24 months. There is a low 2.1% balance transfer fee if you are transferring a balance of £2,000 or more, although this rises to 3.2% for smaller sums. After the introductory period ends, the card has a representative annual percentage rate (APR) of 17.9% (variable).
If you switched a balance of £2,000 onto this card from a card with an average APR of 17.32%, you could save yourself £238 in interest payments a year, taking into account the balance transfer fee.
Check your energy tariff
With energy price hikes having kicked in it's vital to ensure you aren't paying more for your gas and electricity than you need to.
Switching tariff could save you hundreds of pounds a year, going some way towards cancelling out any child benefit losses.
One of the easiest ways to make savings is to move to a dual fuel online direct debit deal. For example, according to research by MoneySupermarket, by switching to the best online dual fuel tariff, First Utility's iSave v13, instead of staying on the average standard QCC tariff, customers could save on average £214 over 12 months.
Visit our energy channel and see what you can save.
Review your savings
Make sure that any savings you have are earning as much interest as possible. Even though savings rates have fallen in recent months, you could still end up with plenty more interest in your pocket at the end of the year provided you hunt out the best accounts.
For example, switching from an easy access account paying the average rate of 0.27% to a Marks & Spencer Everyday Savings Account offering 2.35% could generate an extra £104 in interest based on a savings pot of £5,000.
The Marks & Spencer rate includes a 1.00% bonus which is only payable for the first year, so you may want to move your money once this disappears. This account can be operated online as well as by telephone.
Kevin Mountford, head of banking at MoneySupermarket said; "Don't be put off by lower rates - it's still worth moving your money into the highest paying accounts, especially if you have never shifted your savings."
Other options include Issue 8 of the Post Office's Online Saver Account, which pays a competitive 2.35% (AER) on a minimum investment of £1. This rate includes a 0.70% fixed bonus for the first 12 months, so you may want to move your money once the bonus goes. This account can only be opened and operated online.
ING Direct's Savings Account, which pays 2.00% AER and can be opened with £1 is also worth a look. This rate includes a 1.48% fixed bonus in the rate for the first year.
Savers who would prefer a 'clean account' without any bonus included in the rate, may want to consider Scottish Widows Bank Direct Transfer Account 2, which pays 1.70% AER on a higher minimum investment of £1,000.
As well as making savings by sorting out your finances, you should also budget carefully, and take into account the fact you will receive less or no Child Benefit
Sit down and write a list of all your outgoings - this will help you to identify where you can make savings.
If you find you are regularly going overdrawn, set limits on your expenditure and always write a list when you are going shopping as it will help reduce the temptation to make impulse purchases.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct
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