Transferable tax allowances for married couples

Sterlingtimes

The HMRC guidance reads as follows:

"This allows a spouse or civil partner who is not liable to income tax above the basic rate to transfer £1,050 of their personal allowance to their spouse/civil partner, provided that the recipient of the transfer is not liable to income tax above the basic rate."

But let's say my ordinary allowance is £10,600 and the top of the 20% band is £31,876. That means that I can earn £42,386 before hitting the 40% band. Let's say that I earn £43,000. I am 40% tax payer.

But now I agree with my wife, who has no income, to transfer £1,050 of her allowance to me. Now I can earn £43,436 before I pay 40% tax. I earn £43,000, so all my tax is now at 20%.

Does it matter that I was a 40% taxpayer before the transfer and a 20% taxpayer after the transfer?

Essentially, do I have to be a 20% taxpayer before the transfer?

molerat

Yes .........................

[Deleted User]

Unless, of course, your earnings of £43000 are before pension contributions - something many do not consider. But the premise is correct.

le_loup

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Careless!

Sterlingtimes

[Deleted User] wrote:

Unless, of course, your earnings of £43000 are before pension contributions - something many do not consider. But the premise is correct.

Thank you.

I have been contriving to pay pension, sell holiday days and pay into a employee share scheme to become a 20% tax payer. Company rules do not permit me to raise my pension contribution at this time of year and I am in danger of just becoming a 40% taxpayer before the transfer arrangement applies. It is my first ever month's receipt of pension income in March (a few hundred pounds) from a DB scheme that upsets the apple cart. Can I correct the problem by paying March's pension receipt into my SIPP?

Linton

Sterlingtimes wrote: »

Thank you.

I have been contriving to pay pension, sell holiday days and pay into a employee share scheme to become a 20% tax payer. Company rules do not permit me to raise my pension contribution at this time of year and I am in danger of just becoming a 40% taxpayer before the transfer arrangement applies. It is my first ever month's receipt of pension income in March (a few hundred pounds) from a DB scheme that upsets the apple cart. Can I correct the problem by paying March's pension receipt into my SIPP?

You can as your current pension payments are below the twin limits of £40K (including employers contribution) and your total earnings. The payment should be the gross amount -20% basic rate tax which will be refunded to your pension by HMRC. You will need to tell HMRC what you have done so they can refund the additional Higher Rate Tax you will have paid through PAYE.

Sterlingtimes

Linton wrote: »

You can as your current pension payments are below the twin limits of £40K (including employers contribution) and your total earnings. The payment should be the gross amount -20% basic rate tax which will be refunded to your pension by HMRC. You will need to tell HMRC what you have done so they can refund the additional Higher Rate Tax you will have paid through PAYE.

I really appreciate your guidance on this issue.

Kind regards, Sterling.