Child benefit

Imminent changes to child benefit will mean a family with three children under 6 could lose around £50, 000 by the time their youngest child is 18 - more than a year's after tax salary for those who stand to lose the benefit, according to PwC analysis.

Families with two small children could lose nearly £40,000.

PwC's findings were based on the sum of benefits that would have been received by a family from January 2013, when child benefit will be stopped for households where one person is earning £60,000 or more, until their children are 18. The accountancy giant’s analysis is based on the future projected value of those benefits with the assumption that these benefits would have increased in line with annual inflation.

The Big Four firm took two hypothetical families on which to base their calculations: one with three children who will be aged 5, 3 and 1 on 1 January 2013 and the other with two children who will be aged 3 and 1 on 1st January 2013.

The value of the benefits were calculated and expressed in 2029 values, the year the youngest child in both families reaches 18. These projections were in turn based on PwC projections of consumer price inflation and long-term inflation expectations based on the Bank of England's target inflation rate of 2% per annum.

The three child family would forfeit £50,684 worth of benefits while the family with two children would lose out on £38,948.

Alex Henderson, tax partner at PwC, said:

‘Many people affected by the child benefit cuts have probably not considered what the true cost will be to them over time. Our projections show the cost could be substantial, and could ultimately mean many middle income families have to work longer until retirement or until they can pay back debts.’

However, it has emerged that high earners working abroad could potentially keep all their child benefit regardless of whether they have an income higher than £50,000.

The apparent anomaly exists because the change only applies to earnings taxed in the UK, so families with a big earner working abroad may not be in line for any cuts.

HMRC has confirmed that only the income of the person living in the UK will be taken into account when it decides whether a household's child benefit should be reduced.