Tax Credits and Benefits
Tax Credits
Changes to tax credit rates were announced in the Autumn Statement and were not referred to again on Budget day by the Chancellor. The family element of Child Tax Credit (£545) was until 2010/11 paid to couples with incomes up to £50,000, and it was reduced to nothing when combined income reached £58,000; in 2011/12 it started to be tapered away when income was £40,000 and will be zero by £41,330. For 2012/13, all Child Tax Credits will be tapered when income exceeds £15,860. This means that a couple with two children and combined income of £35,000 will lose the whole of the £545 credit they were entitled to last year – a benefit cut much higher than the tax saving arising from the increase in the personal allowance.
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Child benefit
Mr Osborne announced in his first Budget that the universal payment of Child Benefit would cease from January 2013. The previously announced intention has been modified: instead of withdrawing the whole amount where either partner in a couple is a higher-rate taxpayer (income over £42,475), the benefit will only be clawed back where one partner earns over £50,000. 1% of the payment will be recovered for every £100 of additional income until it is all gone at an income level of £60,000. The benefit will continue to be paid in nearly all circumstances to the mother, but the clawback will be collected as an income tax charge on the higher earning partner (apparently applying only for the last quarter of 2012/13).