Families receiving tax credits won't be hit as hard as expected after the Chancellor today announced a U-turn on one of the major proposed cuts in the Summer Budget.

George Osborne has reversed earlier plans by saying the income threshold to receive tax credits and the tapering applied to it will stay the same.

However, all other changes to tax credits and welfare announced in the Summer Budget will go ahead as planned.

What has been reversed?

The maximum amount of income a household can earn to be eligible for the full amount of tax credits will remain at 6,420 from April 2016. This was previously set to reduce to 3,850.

Additionally, for every 1 you earn above 6,420, you currently lose 41p of benefit. This loss, known as 'tapering', will remain at this level from April 2016. It had been set to increase to a loss of 48p of benefit for every 1 earned above the threshold.

Income thresholds for child-tax-credit-only claimants will also remain at 16,105 from April 2016. This was previously set to reduce to 12,125.

All changes to universal credit as announced in the Summer Budget will go ahead.

Martin Lewis
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What does this mean for me?

If you're eligible for tax credits because your income is below the thresholds, you will continue to be so from April 2016. This may not have been the case if the changes proposed in the Summer Budget had gone ahead.

But while the reversal to household income thresholds and tapering will be good for some, many will still be affected by changes previously announced. In July, the Institute for Fiscal Studies said the freeze to working age benefits alone would affect 13 million families, each losing 260 a year in benefits on average.

What you can do now is use our 10-minute Benefits Check-Up to ensure you're getting everything you're currently entitled to.

What won't change?

Apart from the tax credits income threshold and the tapering, all other big changes announced in the Summer Budget to tax credits and welfare will go ahead as planned.

These include:

  • Working age benefits including tax credits to be frozen for four years (from April 2016).
  • Limiting support under universal credit to the first two children (for families applying from April 2017).
  • Removing the family element in tax credits for those starting a family after April 2017.
  • Scrapping housing benefit for 18 to 21-year-olds and the family premium for some.
  • Reducing the household benefits cap from 26,000 to 20,000 (23,000 for households in London).
  • Dropping amounts for work-related employment support allowance.

As previously pledged, disability benefits remain unaffected by the changes.

For full information on this, see our Summer Budget benefits shake-up news story.

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