Q&A: What does Budget 2012 mean for me?
The Budget 2012 brought in some long anticipated changes to child benefit, and a new higher personal allowance rate, alongside a raft of other measures. We asked Mumsnetters to send in their questions about what the Budget means to them and their families. Here are the answers to those questions from a range of financial experts.
Our experts are Sue Royston, senior policy officer at Citizens Advice; Danny Cox, head of advice at Hargreaves Lansdown, the independent financial advisers; Will Hadwen, senior rights advisor at charity Working Families; Clare Francis, head of content at MoneySupermarket.com and Grainne Gilmore, head of UK residential research at Knight Frank, the estate agents.
Q. Princessprecious: I'm wondering a) how the budget will affect me and b) if I can claim tax credit/working tax credit/anything at all!! I am a stay-at-home-mum and earn nothing. My husband earns £29,600 a year. We have a (luckily) small mortgage but it seems we are not poor enough to be eligible for benefits but not rich enough to be able to manage bills etc without a bit of a struggle. We have one child who is nearly one, so receive child benefit. I have been told I am not eligible for tax credit any more as the threshold has been reduced to £26,000. Also DH is starting a new job in September 2012 and will be earning around £35,000 - will this change anything for us taxwise?
A. Sue Royston: Yes I’m afraid the information about tax credits you have is right – though you should be aware that if you have another child you would then be eligible for some tax credits as the threshold is different for people in different circumstances. The better news is that the raising of the tax threshold will mean that your husband will pay £220 a year (£4.23 a week) less tax from April 2013. A previous rise in the tax threshold will come into effect from April this year and he will pay £126 a year (£2.42 a week) less tax from then. The increase in net earnings wont compensate for the loss of tax credits but hopefully will help.
Q. Hisgoingtogoboom: I work part-time for the county council, earning approximately £12,000. DH works part-time in various private sector jobs (mainly minimun wage) and earns approximately £10,000. We have 3 children. The only benefit claimed is child benefit. We run two cars ( we live rural-ish). How does the Budget affect us?
A. Sue Royston: First it sounds as if you should be entitled to some tax credits. Also if you live in rented accommodation it is possible you may be entitled to some housing and council tax benefit. I would suggest you contact the tax credit office and your local authority (about housing benefit) or ask your local CAB if you can have a benefit check. As for the Budget – you will both pay £220 a year (£4.23 a week) less tax from April 2013.
Q. Mumfortoddler: I'm a single parent earning £18,600, working 3 days per week (22.5 hours). How will the Budget affect my working tax credit and are there any planned changes to housing benefit?
A. Anton Bass: The stopping of working tax credit for those working less than 24 hours only affects the joint hours worked by couples. The hours limit for single parents remains at 16 hours per week. There are no planned changes to housing benefit (HB) until Universal Credit comes in, from October 2013. There will be a rise in HB from April to take account of inflation but the less good news is that the gains in net earnings from the raising of the tax threshold will be taken into account as income for HB purposes so you will gain less from this measure.
Q. Colditz: I am a stay-at-home-mum, and a carer for my DS1. I'm also a single parent. Currently I receive Carer's Allowance, DS1 receives DLA HRC (higher rate care). To be blunt, is this Budget going to mean a loss of income for me?
A. Sue Royston: I am pleased to say that there were no measures in this Budget which are likely to reduce your income!
Q. Purpleroses: How do the child benefit (CB) cuts announced affect separated parents? Neither me nor my kids' Dad earn very much, but my partner (not married) earns over £60,000 (whereas my ex's wife does not). I currently claim child benefit for my two kids - but could I choose to allow my ex to claim it instead if I wanted? We share their care, though they spend most nights of the week with me. If I let him claim it, I could ask him to pay some of it to me, couldn't I?
A. Will Hawden: Yes, you could choose not to claim child benefit (CB) and allow your ex to claim (at the moment, if he claimed without you giving up the CB, he wouldn’t get it because the children mostly live with you). Your ex would meet the conditions if the children live with him or if he contributes to the cost of supporting them. If your ex is not earning very much, then there will be no clawback of the CB from tax, whereas if you continue claiming, then from January 2013 all your CB would eventually have to be recovered from your partner via a tax charge. You could certainly ask your ex to pay some of the CB to you if he claims it, but you wouldn’t be able to enforce this. Remember however that you might be able to get child maintenance from your ex, and this can be either a voluntary arrangement (not enforceable), or via the Child Support Agency (when it would be enforceable). You can get more information about this from Child Maintenance Options.
Q. Jinsei: I participate in a salary sacrifice scheme for my pension - is it my nominal salary that determines the child benefit or is it the reduced amount?
A. Danny Cox: Under a salary sacrifice arrangement you are agreeing to give up some of your salary in exchange for the pension contribution. For CB purposes your reduced amount applies since, according to Revenue & Customs, this is actually what you are being paid. The nominal salary is the figure your employer uses to calculate other benefits typically such as death in service. Salary sacrifice is one of the most tax efficient ways to save into pension due to the national insurance contribution savings. However, it is important to note that other issues may be affected by a reduction in salary such as your entitlement to other state benefits or the amount you can borrow.
Q. Toot: My husband earns over £60,000, I earn nothing. I get paid child benefit (CB) for our 2 sons (1 with special needs but not enough to claim anything for). How can the tax system view us as 'tied' when we are separate people yet can't view others as 'tied' in terms of household income? Surely now 2 earners each on £50,000 can have child benifit but my family can't. Will I get credits towards my old age pension now that my husband is having my child benefit taxed off him? Will I stop getting the benefit or continue getting it and have to pay it back - very confused.
A. Will Hadwen: Unfortunately, under the rules which will come in from January 2013, your husband will have to pay a tax charge equal to any CB you claim. Although the tax system doesn’t do this, most income-related benefits are based on household income, so a lot of middle and lower income couples face the problem of income being ‘tied’ when they are claiming benefits. It’s true that 2 earners on £50,000 each would not face having to pay back their CB.
There may be some options for your husband to reduce his taxable income, for example by contributing to a pension or joining a salary sacrifice scheme and getting child care vouchers. If you have children under 12, then whilst you are claiming CB you get national insurance credits which go towards your retirement pension. You have the choice to continue being paid the benefit (in which case your husband will have to pay it back eventually via the tax charge), or you can claim CB but choose not to be paid it. If you choose not to be paid it but still claim it, you can still get the national insurance credits as long as the Child Benefit Office have all the details about your CB claim.
Q. Goingtoofast: If my DH earns above 60k will I still get NI credits every week? How is the new system going to work, will everybody claiming child benefit (CB) have to fill in a tax credit style form every year? If DH gets paid for overtime or eanrs a bonus will I have to call a helpline to delcare it straight away. How can it be cost effective?
A. Danny Cox: For families with children, if one parent has a taxable income of more than £50,000 per annum, their entitlement to child benefit will be reduced. This works by applying an additional tax charge on a sliding scale from £50,000, so that any CB is completely lost if your taxable income exceeds £60,000. The eligibility for CB will be assessed through annual self assessment tax returns and the tax charge applied by adjusting your personal allowance. In effect the tax charge claims back all or part of the CB received. There will also be the option to opt out of CB to avoid the charge.
Those who have variable income may qualify for CB one year but not the next. Here it is probably better to claim the CB year on year and have the tax charge (or not) applied through self assessment. Those who will always earn more than £60,000 should probably opt out altogether. However, if your income is above £50,000 and you want to ensure that you retain your CB, you can do so by reducing your taxable income to £50,000. This can be done by making a pension contribution via salary exchange (also known as salary sacrifice). For example, if your income is £52,000 you will start to lose some of your CB. To solve this problem, make a pension contribution of £2,000 gross. This will save you £840 in income tax and national insurance and preserve your CB – with two children this would save £1,700 a year.
Under a salary sacrifice arrangement you are agreeing to give up some of your salary in exchange for the pension contribution. For child benefit purposes your reduced amount applies since, according to HMRC, this is actually what you are being paid. The nominal salary is the figure your employer uses to calculate other benefits typically such as death in service. Salary sacrifice is one of the most tax efficient ways to save into pension due to the national insurance contribution savings. However, it is important to note that other issues may be affected by a reduction in salary such as your entitlement to other state benefits or the amount you can borrow.
Q. Oddboots: I know that the personal income tax allowance is going up, how will this change the higher rate threshold?
A. Danny Cox: For 2012, the personal allowance is rising to £8,105 and the higher rate tax threshold is being frozen at this year’s level, £42,475. This squeezes down the basic rate tax band from £35,000 to £34,370. For 2013, the personal allowance will increase to £9,205 but the higher rate tax threshold will decrease to £41,450, the basic rate band squeezes further to £32,245. This combination of firstly freezing and the reducing the higher rate tax threshold will drag more people into the higher rate tax threshold. The Institute of Fiscal Studies believes the changes to the higher rate tax band over the next 2 years will push 1.3 million more people into the higher rate tax band, taking the total to 5 million.
Q. Cogitoergosometimes: Pensioners. There's been talk of a single-tier, flat rate pension - about £140/week - for about a year now. Was anything specific announced in the Budget?
A. Clare Francis: Yes – the Chancellor confirmed that pensioners will receive a flat-rate state pension, initially worth £140 a week for those with a 30-year national insurance record, from 2016. The change will see the current basic state pension and second state pension (S2P, formerly known as Serps) replaced by a single scheme.
Q. Cogitoergosometimes: Can someone explain more about the New Buy Scheme that was mentioned. Who would benefit most from it?
A. Grainne Gilmore: The NewBuy scheme, sometimes referred to as the Mortgage Indemnity scheme or Mortgage Guarantee scheme, allows buyers with a small deposit to access mortgage deals. Homebuyers who have saved only a 5% deposit can secure a home loan via lenders taking part in the scheme, including Nationwide, Barclays and Natwest.
Lenders are reluctant to lend to those who do not have a substantial deposit of say 20% or 25%, especially if they are purchasing a newly completed home. The reason that mortgage lenders are offering these deals (which come with very reasonable interest rates) is that the house builders selling the houses, and the Government, have agreed to take on a slice of the risk. This does not come into play while the borrower is living in the house and repaying their mortgage. That part of the deal works as usual. But things change if the homeowner defaults on their payment, and the house is sold for less than the lender paid.
If the borrower cannot repay the shortfall, traditionally lenders bear the loss from the sale. But under the new scheme, money from a fund set up by the house builder will be used to make repay the extra sum to the mortgage lender. If there is not enough money in this pot, then the Government will step in. Housebuilders will put 3.5% of the value of each home in the ‘pot’. Once this is exhausted, the Government’s 5.5% ‘guarantee’ of the value of each home bought will be used.
So the scheme should help an estimated 50,000 first-time buyers, giving them a leg up onto the housing ladder, and possibly those wanting to move into a larger home who have found it difficult to access mortgage finance. However the scheme is unlikely to boost the wider housing market – as it is quite small scale, and there will be little ‘churn’ of existing houses to enliven the market as most buyers are expected to be first-timers.
Last updated: over 3 years ago