Marriage Allowance

polymaff

Dazed_and_confused wrote: »

This is wrong. Gov.uk information about the marriage allowance clearly supports stardust16's view, see note 6 in this link (which is specific to the year stardust16 is questioning)

I was also quoting Gov.uk, namely:

https://www.gov.uk/marriage-allowance/how-it-works

As far as I know, no change to applicability criteria has taken place between 2015/16 and 2016/17, so the two gov.uk statements conflict.

The clincher to me is HMRCs own in-house documentation as to how MAT is decided for 2015/16.

HMRC's test, for 2015/16, is to compare (their exact terminology)

"Net Income used for calculating the election to transfer personal allowance"


with

"Personal allowances"

and to only permit MAT if the latter is greater than the former.

zagfles

The legislation does seem to state that the transferror must have income less than the PA. See section 55C (2)
http://www.legislation.gov.uk/ukpga/2014/26/pdfs/ukpga_20140026_en.pdf

sheramber

55C Election to reduce personal allowance
(1) An individual may make an election for the purposes of section 55B if—
(a) the individual is married to, or in a civil partnership with, the
same person—
(i) for the whole or part of the tax year concerned, and
(ii) when the election is made,
(b) the individual is entitled to a personal allowance under section
35 or 37 for that tax year,
(c) assuming the individual’s personal allowance was reduced as
set out in section 55B(6), the individual would not for that year
be liable to tax at a rate other than the basic rate, the dividend
ordinary rate or the starting rate for savings,
and

(d) where the individual meets the requirements of section 56
(residence) for the tax year by reason of meeting the condition
in subsection (3) of that section, the individual meets the
condition in subsection (2) of this section.
(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.


There are two separate conditions.

Section 2 refers to those for whom 55d Is applicable

polymaff

zagfles wrote: »

The legislation does seem to state that the transferror must have income less than the PA. See section 55C (2)
http://www.legislation.gov.uk/ukpga/2014/26/pdfs/ukpga_20140026_en.pdf

sheramber wrote: »

...(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 ...

Quite. GOV.UK is very quotable - but also very unreliable. The legislation is, by definition, the best reference as to what should be the "facts" - but the most pragmatic source of information when trying to understand HMRC's actions is, IMHO, the HMRC reference documents I quoted.

EDIT: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/516175/2016-indi-taxnic-calc.zip

teddysmum

Edited, as I incorrectly used 20% of £1060, instead of £1100




Another pitfall, then :


Giving a spouse 10% allowance leaves a PA of £9900


Earnings/pension £9000, savings interest £1999,saving by giving spouse 10% allowance £220- Total £11219


Earnings/pension £9000, savings interest £2200 (no transfer allowed) - Total £11200


Earnings/pension £9000, savings interest £2219-Total £11219 so you have the same over all as if you only had £1999 of interest.


So on £9000 with savings interest from £2000 to £2218 you are worse off for having the extra savings banked for interest.


Earnings/pension £9900, savings interest £1099, saving from transfer £220-Total £11219


Earnings/pension £9900, savings interest £1319-Total £11219 so the same over all as having just £1099 of interest.


So on £9900 with savings interest from £1100 to £1318, you are worse off for having savings .


I wonder if the new £1000 savings interest allowance for every basic rate tax payer will impact on this , as it is actually called an allowance and not a zero tax band.

Dazed_and_confused

teddysmum wrote: »

Another pitfall, then :


Giving a spouse 10% allowance leaves a PA of £9900


Earnings/pension £9000, savings interest £1999,saving by giving spouse 10% allowance £212- Total £11211


Earnings/pension £9000, savings interest £2200 (no transfer allowed) - Total £11200


Earnings/pension £9000, savings interest £2211-Total £11211


So on £9000 with savings interest from £2000 to £2210 you are worse off for having savings.


Earnings/pension £9900, savings interest £1099, saving from transfer £212-Total £11211


Earnings/pension £9900, savings interest £1311-Total £11211


So on £9900 with savings interest from £1100 to £1310, you are worse off for having savings .


I wonder if the new £1000 savings interest allowance for every basic rate tax payer will impact on this , as it is actually called an allowance and not a zero tax band.

I agree with sheramber on this one. I can see no reason why someone with the income types/amounts you have used couldn't apply for marriage allowance to transfer the 10% to their spouse and still not have any tax to pay because they would benefit from the 0% savings rate band.

I think personal savings allowance in this situation has been discussed on another mse thread (on savings board??) and the person with income types/levels would not be entitled to the personal savings allowance (and would not benefit from it or lose out by not getting it)

teddysmum

I have edited above as, for some reason, I took 20% of the old PA instead of £220 which is 20% of this year's.




You now have me 'dazed and confused' as I'm not sure what you are saying.




However,the point of my post is to point out that, unless the new £1000 tax free allowance (assuming it is considered to be an allowance and not a zero tax band), helps, there is a range of interest that makes it not worth your banking some savings for interest, as losing the £220 tax saving by the spouse results in less income over all.

Dazed_and_confused

I'm saying I believe someone with approx 9000 pension and 2000 interest could still apply for marriage allowance and not have any tax to pay

9000 + 2000 = 11000 income
11000 - 9900 personal allowance = 1100 liable to tax
Tax due = 0 (1100 x savings rate of 0%)

The personal savings allowance is indeed a nil rate band like the dividend one and existing savings rate band but i think that the PSA isn't due on this mix if income types/values and this isn't a problem as no tax is due so PSA is unnecessary.

polymaff

The changes in taxation have thrown up all sorts of anomalies.

Consider someone with an occupational pension of £11k and some savings income starting to receive a state pension of £6k. Before the state pension starts, up to £5k of savings income is taxed at 0% due to the Starting Rate Allowance. After the state pension starts the SRA vanishes and so the pensioner pays the expected 20% on the state pension PLUS 20% on the up to £5k of savings income - a marginal tax rate of up to 40% on a significant fraction of only £22k of income. This penalty on a low-income tax-payer of up to £1,000 puts the relatively low losses due to anomalies involving MAT and the PSA into perspective.

Badly thought out tax policy produces unfair outcomes.

@Teddysmum. You're fundamentally wrong in that you've not taken into consideration the Starting Rate Allowance which, for the example of £9,000 Non-Savings Taxable Income would give enough relief to produce a zero tax bill irrespective of which of the savings figures you quote applies and whether MAT was applicable or not.

I would need to do quite a bit of research to confirm this, but I believe that HMRC's implementation of the MAT is that the MAT will not take place if the donor's taxable income exceeds the personal allowance both before AND after its potential adjustment.

@DazedAndConfused. Your response to Teddysmum seems to suggest that you still disagree with Sheramber, Zagfles and myself re: criteria for the granting of MAT including not having a taxable income greater than or equal to the Personal Allowance. Do you now recognise that you were wrong to rely on the specific GOV.UK advice you referred to?

sheramber

An interesting article

https://www.swat.co.uk/AccountancyNews/AccountancyNewsArticle/tabid/189/ArticleID/1093/HMRC%E2%80%99s-interpretation-of-the-Marriage-Allowance.aspx