Child Benefit Changes from 12am tonight.
Changes to the rules on child benefit come into force tonight and will reduce the entitlement of about 1.2 million families.
Families where one parent is earning more than £50,000 a year will no longer be able to claim the total amount of child benefit, under government plans.
How these rules are put into action is being finalised by the UK tax authority.
However, this will include an expectation that couples will disclose to each other whether they claim child benefit, or earn above £50,000 a year.
How much is child benefit worth?
Child benefit is a tax-free payment that is aimed at helping parents cope with the cost of bringing up children.
One parent can claim £20.30 a week for an eldest or only child and £13.40 a week for each of their other children.
The payments apply to all children aged under 16 and in some cases until they are 20 years old.
The system is administered by HM Revenue and Customs (HMRC) which pays out to nearly 7.9 million families, with 13.7 million children.
How will this eligibility change?
At present, all families can claim. However, this is about to change.
In the 2012 Budget, Chancellor George Osborne announced an amended plan to steadily withdraw child benefit from families where one parent earns more than £50,000.
In detail, the benefit received will be recouped gradually as the income of the highest earning parent rises above £50,000, with the child benefit being eroded completely once their income is £60,000 or more.
This change will come into effect from 7 January 2013.
How will that work?
In one of two ways.
If one of the parents earns more than £60,000, they may choose to stop claiming child benefit, or persuade their partner to do so, and save the tax authority the trouble of getting it back.
A parent who earns more than £60,000 and who continues to claim child benefit will be taxed
If they or their partner keeps claiming it, then the higher earner will have to admit this in a self-assessment tax form.
Then, HMRC will tax the high earner on the child benefit which they, or their partner, claims.
So, the high earner will need to know whether their partner is claiming child benefit, because it will be the high earner who is taxed.
In the course of that conversation, it is likely that couples will discuss how much they earn and what they claim.
Does that mean couples need to be honest with each other?
Only one parent can receive child benefit on behalf of their son or daughter
HMRC says it will “expect” couples to give each other basic financial details to see if they must be taxed.
HMRC will also let taxpayers ask for rudimentary information from its records to see whether or not their partners receive child benefit, or have an “adjusted net income” above £50,000, and should be paying the new tax.
This runs counter to the general principle of taxpayer confidentiality, which has been a formal part of the income tax system since 1803, as well as against the policy of separate taxation of married couples which has been in place since 1991.
But HMRC says its rules give it the authority to do this.
Is that a problem?
Not necessarily, and certainly not when couples are already open with each other about financial matters.
But there may be cases when couples want to maintain some privacy between each other, for example, if their relationship has broken down.
So who claims child benefit if a couple has split up?
Both parents might try to claim, even if they live apart, but only one of them will get it.
If somebody is responsible for a child, they normally get the benefit for it. So, usually, the parent with whom the child lives receives the benefit.
However, the other parent can get child benefit even if their child does not live with them.
This only happens when: they pay towards their upkeep; what they pay is at least the same as the amount of child benefit – so they do not profit; and the person the child lives with is not already receiving child benefit.