For families the impact of the recent budget will have both short and long term effects. The increase in the income tax personal threshold and basic rate band will see an immediate small increase monthly pay packets however the announcement of a further £12 billion worth of unidentified cuts to the welfare budget leave uncertainty in terms of its long term impact.
The simplification of money-purchase pension schemes introduced last year takes effect from April 2015. These broadly eliminate the requirement to buy an annuity and simplify the draw-down rules for those not wanting an annuity. People who have already bought an annuity will be able to assign it, with effect from April 2016, to a third party and receive a lump-sum or "alternative retirement product". IHT rules are also improved for pension pots not invested into an annuity when the holder dies. Pensions are a complicated area but a significant asset on separation and should not be ignored.
From 7 January 2013, child benefit was effectively withdrawn for households where an earner has income of £60,000 or more and starts to be withdrawn if their income is over £50,000. This rule applies to married couples and civil partners, but also – importantly – unmarried couples living together. Child benefit is usually paid to the mother; if she continues to claim it but her husband earns more than £60,000, she receives the benefit but he pays additional tax so that it is clawed-back. This gives the potential for added difficulty on divorce. If the mother moves in with a new partner, she should stop claiming the benefit if she knows that his earnings are more than £60,000, otherwise he will face the tax claw-back. If parents live apart, the benefit will usually be paid to the parent where the child lives, but may be paid to the parent who supports the child.
A measure announced in 2013 comes into effect in autumn 2015, under which working families will receive up to £2,000pa per child towards childcare costs for children under 12 (or disabled children under 16) in a new initiative (up from £1,200 when first announced last year). This will operate as a voucher scheme, whereby the family opens an on-line "voucher account" and for every 80p they put in the Government adds 20p. To be eligible "all parents in the household must be working, not receiving tax credits or universal credit, and neither earning over £150,000pa". This has already faced heavy criticism in the press for not being available for stay-at-home mothers and hence anti-traditional family.
For any person contemplating a divorce or separation it is important that they obtain early advice about their finances. The pension pot is now both a source of both future income and capital and legal advice at an early stage and throughout negotiations will protect your long term security. At Garratt's Solicitors our team of family solicitors understand how stressful such negotiations can be at an emotional time and we will do all we can to protect your interests. We have various flexible options for managing your costs and offer a discounted first interview where you can access expert preliminary advice and receive a comprehensive written summary of that advice thereafter.