Married couples allowance and ‘extra earnings’

Lynford

Hi all, I wonder if anyone could help please ?

I recently helped an elderly couple I know apply for Married couples tax allowance (he’s a ‘normal rate payer and she earns only £200 per month)

As an aside, claiming for this has gone around our town like wildfire as people have just found out. I told this couple that I’d got my parents some money back and it went from there.

So, the couple. The husband got a cheque back from HMRC, just like my dad did, so all good.

The wife in this couple then had a letter from her pension provider offering to ‘buy her out’ for want of a better term. She’s been offered £26k which the letter says will be work about £21k after tax.

They’d like to take this but the problems is, as I see it, that we have just told HMRC that the wife doesn’t earn enough to pay tax, then all of a sudden she’ll need to pay tax on this £26k.

What would happen if she accepted ? Would she simply pay extra tax to account for the £1150 allowance she’s transferred to her husband or would there be more serious implications ?

Thanks for any help.

p00hsticks

Just to clarify - did you mean to refer to 'Married Couple's Allowance'
https://www.gov.uk/married-couples-allowance
which is only available when at least one of the couple was born before 6/4/1935

or are you really talking about the more recent 'Marriage Allowance' which is potentially available to all married couples / civil partners
https://www.gov.uk/marriage-allowance

EDIT: I've just realised the fact that you talk about transferring £1150 indicates that you mean the latter....

Lynford

Yep, sorry to be unclear - The latter.

Dazed_and_confused

It might be simplest to leave things as they are providing the husband gets the full benefit of the Marriage Allowance i.e. would be paying at least £230 in tax (current year).

Yes the wife will pay more tax, £230, from what you have posted, but no loss to them as a couple and the husband will continue to benefit in future tax years.

Only point things might change is when the wife starts to get her State Pension however chances are it won't be large enough to make her start paying tax even though she has applied for Marriage Allowance.

Dazed_and_confused

£5,000 in tax may be deducted when the £26,000 payment is made but chances are there could be a tax refund due even after taking into account the lower Personal Allowance she is entitled to and the (roughly) £2000+ she will have earned earlier in the year.

£3.5k seems a more realistic amount of tax that will actually need to be paid.

margaretclare

We became eligible for this when we got married in 2002 - his birthday is 30.12.1934.

As we both have pensions earned from previous employment, we asked to split the allowance to set against our individual pensions income. It has worked well.

It may be different for the couple quoted by Dazed and Confused, who speaks of them getting income 'as a couple'. We don't. We each receive our own pensions income. When the lady being discussed gets her retirement pension she will get it as an individual and not as part of a couple.

xylophone

You mention that your friends are "elderly".

How old are they?

You mention that the wife "earns" £200 a month - is this income from employment?

Is the pension mentioned her only pension apart from state pension?