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zagfles

AlwaysLearnin wrote: »

The person transfering part of their allowance must have income under the PA:

https://www.gov.uk/marriage-allowance

Nope. As usual the gov.uk noddy guide oversimplfies things.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/294190/OOTLAR_19_March_2014__1_.pdf

Legislation will be introduced in Finance Bill 2014 to provide that from the 2015-16 tax year, a spouse or civil partner who is not liable to income tax because their income is below their personal allowance or who is liable to income tax at the basic rate, dividend ordinary rate or the starting rate for savings will be able to elect to transfer £1,050 of their personal allowance to their spouse or civil partner. There will be a corresponding reduction to the transferring spouse's personal allowance.
A spouse or civil partner who is liable to income tax at the basic rate, dividend ordinary rate or the starting rate for savings will receive the transferred personal allowance. The transferred allowance will be given effect as a reduction to the recipient's income tax liability at the basic rate of tax.

And the legislation itself:

http://www.legislation.gov.uk/ukpga/2014/26/section/11/enacted

The transferring person can be a basic rate taxpayer.

ETA: though having read the legislation, it might not work in the scenario I described to get tax free interest, because it looks like the legislation is written to provide a reduction in tax of transferred allowance x basic rate, rather than extra allowance.

So might be possible if both pay basic rate tax but not actually use in any situation!

AlwaysLearnin

I stand corrected. Thanks for that.

Got me thinking now; just wondering if I can make this work for our situation - I'm currently making pension contributions to stay under the higher rate tax, and OH has a part time job not much above the PA amount, so I wonder if I could transfer part of my PA, up my pension contributions to stay in BR tax (effectively therefore getting 40% relief on the extra?), and in turn take OH out of BR? Bit of reading to do...!

enthusiasticsaver

Something I never realised until today is that if you are a low earner (less than £15600 per annum) you can get your interest on savings gross of tax from today. I only work part time, earning just over £12200 per annum and have just registered for gross interest on my Santander 123 current accounts saving me £180 per year in tax.

AlwaysLearnin

zagfles wrote: »

[snip]
And the legislation itself:

http://www.legislation.gov.uk/ukpga/2014/26/section/11/enacted

The transferring person can be a basic rate taxpayer.

ETA: though having read the legislation, it might not work in the scenario I described to get tax free interest, because it looks like the legislation is written to provide a reduction in tax of transferred allowance x basic rate, rather than extra allowance.

So might be possible if both pay basic rate tax but not actually use in any situation!

Having read it, doesn't 55C cover the need for the person transfering their allowance needing to be under PA?

(2)The condition is that the individual’s hypothetical net income for the tax year concerned is less than the amount of the personal allowance to which the individual is entitled for that tax year under section 35 or 37.

zygurat789

AlwaysLearnin wrote: »

Having read it, doesn't 55C cover the need for the person transfering their allowance needing to be under PA?

Sec 55C (1)(c) seems to say that you can pay basic rate tax after the transfer but the condition at 55C (2) seems to contradict this.

There is a great deal of confusion here which has been caused solely by the gov.uk site who are much worse than HMRC used to be. They do not seem to understand that you can earn more than £42,285 and still pay the basic rate of tax.

zagfles

zygurat789 wrote: »

Sec 55C (1)(c) seems to say that you can pay basic rate tax after the transfer but the condition at 55C (2) seems to contradict this.

There is a great deal of confusion here which has been caused solely by the gov.uk site who are much worse than HMRC used to be. They do not seem to understand that you can earn more than £42,285 and still pay the basic rate of tax.

Yes and the budget note doesn't seem to match with what the legislation says.

What the legislation seems to be saying is that before the transfer the income must be below the personal allowance and after the transfer the income must not be liable to more than basic rate tax (but how could it ever be???)

So someone who earns say £10k would be below the personal allowance before the transfer, and so OK under 55C(2), but would end up paying a bit of tax as a result of the transfer reducing their allowance, obviously basic rate so OK under 55C(1)(c) !!

Maybe the gov.uk noddy guide was right after all But the budget documents were wrong!

AlwaysLearnin

Back to the drawing board on the loophole search then....

quietriot

zygurat789 wrote: »

Sec 55C (1)(c) seems to say that you can pay basic rate tax after the transfer but the condition at 55C (2) seems to contradict this.

The condition in s55C(2) only applies if s56(3) ITA07 applies. (see s55C (1)(d))
For clarity, s56(3) ITA07 says:

An individual meets the condition in this subsection if, at any time in the tax year, the individual—
(a)is resident in the Isle of Man or the Channel Islands,
(b)has previously resided in the United Kingdom and is resident abroad for the sake of the health of—
(i)the individual, or
(ii)a member of the individual's family who is resident with the individual,
(c)is a person who is or has been employed in the service of the Crown,
(d)is employed in the service of any territory under Her Majesty's protection,
(e)is employed in the service of a missionary society, or
(f)is a person whose late spouse or late civil partner was employed in the service of the Crown.

So if you're UK resident for reasons other than the ones above, disregard s55C (2)

zagfles

quietriot wrote: »

The condition in s55C(2) only applies if s56(3) ITA07 applies. (see s55C (1)(d))
For clarity, s56(3) ITA07 says:


So if you're UK resident for reasons other than the ones above, disregard s55C (2)

Thanks, that makes more sense, so basic rate taxpayers (who are "normal" UK residents) can transfer their allowance.

Though it seems the recipient of the transfer gets a reduction of tax rather than an increased allowance so it won't help in the scenario where someone is earning around £16k to get their interest tax free.