Advisers will need to revisit their strategies for parents in the wake of changes to child benefit thresholds.
In the Budget, chancellor Jeremy Hunt increased the income level where people are charged for receiving child benefit.
He announced the income threshold for the High Income Child Benefit Charge would increase from £50,000 to £60,000 in April.
The charge will also be halved from 1 per cent of the child benefit payment for every additional £100 earned above the threshold, to 1 per cent for every £200.
Alastair Black, head of savings policy at Abrdn, said: “Advisers actively create strategies built around the thresholds to optimise the benefits that clients receive.
“Today’s announcement means many strategies will need to be revisited, at least as far as these parts go.
“But this was always going to remain an area of potential change, so hopefully advisers and their clients can now plan ahead with confidence – although we’ll need to see details of the consultation of the household system and the outcome for the future to be set."
Black added advisers will be able to help those in the new bands retain child benefit through effective use of pension contributions.
The announcement was welcomed by Gianpaolo Mantini, chartered financial planner at Saltus, saying there was a strong argument to raise these thresholds even higher.
He said: “Whilst these measures are meant to improve the financial equation to work, or at least be slightly more attractive than being a stay-at-home parent, for some, no real choice remains – especially with the lack and cost of wrap-around care.
“We also need to disassociate the implied suggestion that being in work is a better outcome for the childcare giver and child. This disproportionately affects women – both in the early years and throughout their careers.”
The chancellor also announced plans to focus on household income rather than individual income.
Currently two parents earning £49,000 a year each would receive child benefit in full - but a household with one parent earning more than £50,000 would see the benefit cut.
Shaun Moore, tax and financial planning expert at Quilter: "We have long since called for the government to take a more equitable approach by pegging the eligibility for full child benefit to a household income of £100,000, rather than focusing on the earnings of a single earner.
“The government has today committed to consulting on moving to a system based on household rather than individual incomes.
“This would address the glaring inequity where a dual-income household with each partner earning just under the HICBC threshold can access full child benefit and do not face any reduction in benefits, while in stark contrast, a single parent earning slightly over the threshold faces a reduction or total loss of this support after they earn more than the taper level, despite managing on a significantly lower household income.”
While Justin Corliss, technical manager at Royal London said it was unclear how the focus on household income would be achieved.
He said: “The increase in the child benefit thresholds will be a welcome relief for many families.
"With rates frozen for 11 years and recent wage inflation, the value of the threshold has decreased significantly in real terms. While welcome, it’s currently unclear how the longer term plan to focus on household rather than individual income will be achieved.”
Laura Suter, director of personal finance at AJ Bell, said while the increase does not go as far as rising in line with inflation it will be a boost for many parents.
She said: "The decision to finally raise the threshold for child benefit is a big boost to higher-rate taxpayer parents. Someone earning £60,000 a year who currently gets no child benefit thanks to the high-income charge will now get the full child benefit each year.
"For a parent of two children that represents a total of £2,212.60 a year from April – a decent boost for families."
tara.o'connor@ft.com
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