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Marriage tax break may help balance loss of child benefits

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There has been speculation that the government may reinstate tax breaks for more married couples as a way of offsetting plans to scrap child benefit payments for higher earners.

The re-election Conservative Party manifesto promised that basic rate tax payers would be given a married couples tax allowance of £150 a year.

The tax break may now be extended to include those in higher tax brackets.

Under the manifesto plan, couples, in which one partner is not using all of their personal tax allowance and the other is earning between the personal allowance threshold and £43,875, would receive a tax break of £150 annually.

The government could investigate applying the same breaks to couples who are higher earners.

The Prime Minister, David Cameron said in a television interview: “I have always supported the idea of supporting marriage through the tax system, specifically supporting the idea of a transferable tax allowance.”

However, the Treasury has moved to deny that any possible extension of a reinstated married couples allowance is a reaction to the discontent over plans to scrap child benefit payments for those earning over £43,875, the current 40 per cent tax threshold.

Meanwhile, it has been argued that more than the 1.2 million families, who it is estimated by the Treasury will be affected by the withdrawal of a universal child benefit, could also see their benefits cut.

The government’s commitment to raise the personal allowance, the first part of earnings that is not subject to income tax, to £10,000 by the end of this Parliament has already seen the Chancellor George Osborne lift the threshold to £7,475 from next April.

But in order to limit the tax advantage to lower earners, the Chancellor also cut the threshold for higher tax rate payers.

As a result, the 40 per cent band for 2011/12 is to be reduced to include those earning £42,375.

As the personal allowance climbs over the years to 2015 and the £10,000 target, so the 40 per cent tax threshold may also be lowered correspondingly to maintain the benefit for people on lower earnings.

One consequence of this would be to increase the number of families who lose their child benefits by as many as another 1.8 million.

The proposed reforms to child benefit have been criticised because they target households where either parent earns more than the 40 per cent tax threshold. It is possible that other families, in which both parents earn slightly less than the threshold, could retain their child benefits while those with a single earner on just over £43,875 would lose out.