The Starting Savings Rate, Personal Savings Allowance & Marriage Allowance poser.

polyphonic99

Hi,

I have just finished reading 2 MSE articles http://www.moneysavingexpert.com/savings/tax-free-savings by Helen S and http://www.moneysavingexpert.com/family/marriage-tax-allowance by Sam edited by Martin.

They are both really interesting and useful articles in their own right, but they were written in isolation and I want to find out how they interact together.

Article 1, the Tax free Savings is about the £5000 pa Starting Savings Rate (SSR) introduced in April 2015, and the new £1000 Personal Savings Allowance (PSA) introduced in April 2016 giving low earners, with high savings, a tax free allowance of £17,000 pa for the tax year 2016/17 eg £11,000 pa Personal Allowance and a combined £6,000pa PSA and SSR, assuming their earnings are £11,000pa or less.

Article 2, is about the Marriage Allowance from 2015 which allows partners to transfer 10% of their Personal Allowances between themselves if one partner earns less than their Personal Allowance and the other partner is a basic rate 20% tax payer. This article implies that the "non taxpayer" must earn less than £11,000 pa to do this. However, is that actually correct? I think it really depends on what you mean by "earn". I think it is true that your "earnings" have to be less than £11,000 a year but your "income" could still be as much as £15,900 a year for your still to be able to do this.

EG let us suppose you have a married couple. P1 earns £35,000 a year. P2 earns £9,000 per year. P2 also has savings which generates £6,900 of savings "income" a year giving P2 a total income of £15,900. If P2 elects to give P1 their 10% marriage allowance eg £1,100 pa, as far as I can see that means P2 now has a Personal Allowance(for earnings) reduced to £9,900 pa for 2016/17 but doesn't P2 still retains their full SSR of £5,000 and their full PSA of £1,000 still giving total tax free allowances of £15,900, while P1's allowance goes up from £11,000 to £12,100?

Or maybe I am wrong!

It would be nice if the MSE authors of these two articles gave a response, in the meantime I would welcome opinion from the forum as to what they think.

Dazed_and_confused

You would be well served by reading this thread (or at least the latter part of it once stardust16 started posting).

https://forums.moneysavingexpert.com/discussion/5253467

I think we can safely say that, for 2016:17
1. There is definitely no tax free allowance of £17000.
2. There is a tax free allowance of £11000
3. There is a savings rate band where upto £5000 savings income is taxed at 0%
4. The personal savings allowance is actually a rate band of £1000 taxed at 0%
5. The tax law allows you to make an application for the marriage allowance as long as you aren't a higher rate (or 45%) payer.
6. Anything written by MSE (or HMRC) which says your income has to be less than £11000 isn't compliant with the tax rules (see post by Jimmo, a former tax inspector, in the thread linked to above)
7. Your example is broadly correct but P2 is actually liable to tax on £6000. £5000 taxed at 0% (savings rate band) and £1000 taxed at 0% by virtue of the personal savings "allowance"

polymaff

polyphonic99 wrote: »

Hi,

EG let us suppose you have a married couple. P1 earns £35,000 a year. P2 earns £9,000 per year. P2 also has savings which generates £6,900 of savings "income" a year giving P2 a total income of £15,900. If P2 elects to give P1 their 10% marriage allowance eg £1,100 pa, as far as I can see that means P2 now has a Personal Allowance(for earnings) reduced to £9,900 pa for 2016/17 but doesn't P2 still retains their full SSR of £5,000 and their full PSA of £1,000 still giving total tax free allowances of £15,900, while P1's allowance goes up from £11,000 to £12,100?

Or maybe I am wrong!

No, pretty good, actually

I'd recommend sticking to HMRC's own terminology, though, in that the "SSR" is the Starting Rate Allowance - SRA, and income is classed as following: Dividends, Taxable Savings Income and Taxable Non-Savings Income - the last being anything that isn't included in the other two classes.

Your only error - P1's allowances do not change at all. All that happens if the Marriage Allowance Transfer (MAT) is accepted by HMRC is that P1 receives a reduction in liability to tax at the SA302 stage - i.e. well after P1's liability has been calculated. To look at it from a different perspective, MAT is dealt with just as an overpayment of tax would be rebated - no effect on how P1's income is taxed - just a rebate.

There seems to be some confusion within HMRC about MAT. As a result professional Accountants are reporting different outcomes from, apparently, similar submissions. The fundamental issue is validating MAT. HMRC blocks attempts to allow higher rate taxpayers from exploiting MAT. They've done that by the method I've described above - brutal, but effective. That leaves those who may fully, partially or not-at-all benefit from MAT. The way HMRC seems to be treating this is to grant the MAT in full - reduced Personal Allowance (PA) to the donor and a same value SA302 credit to the recipient. Then they re-assess the donor's affairs to see if the MAT has increased the donor's liability - and issue a supplementary demand for any tax outstanding.

And they call this the Era Of Tax Simplification

A simple model of the 2016/17 Income tax system is at:

http://forums.moneysavingexpert.com/showpost.php?p=70422918&postcount=9

The donor would use this model with the three lines across all lowered by the MAT. Try it out with your P2 case.