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Families face more debt as they lose up to £4,000 in tax credits

Posted by hannah on 05/04/2012

Family of 2 adults and 2 childrenFamilies struggling with debt could find they are the biggest losers from tax changes in the recent Budget.

Hiking the income tax personal allowance gives a general feel-good factor to the Budget and makes families around £380 a year better off - but they may lose up to £4,000 a year from other changes.

The warning comes with the launch of a new tax calculator for 2012 from the TUC.

The calculator lets working families receiving tax credits see how the Budget alters their finances on the Mums.net web site.

The TUC explains that income tax allowances have risen faster than inflation - to £8,105 for 2012.

The tax credit calculator shows that a family with a stay-at-home mum and a dad working part-time on £19,000, a 12-month old child and a 4 year old will gain £191 from changes in the personal allowance by April 2013, but lose around £4,500 - 24 times as much - from tax credit changes.

A two-earner family (combined income £40,000) with two children and childcare costs of £300 a week will gain the maximum possible from the personal allowance increase (£381) but still lose six times as much (£2,312) from tax credit changes.

TUC General Secretary Brendan Barber said: “Millions of people will be getting a small boost from the personal allowance increase this Friday, but working families are likely to have lost far more from cuts to tax credits.”

Families already facing debt problem s can check out how the changes will impact their income and take action to deal with any shortfall straight away.

Many are burdened by unsecured debts like expensive credit cards, personal loans and store cards.

Keeping up repayments on these debts can eat in to money for living costs when sometimes sensible budgeting and rescheduling the money owed with an informal financial management plan can make a big difference.

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