Marriage Allowance

pennywatch

I am very confused over the rules for this – could someone help clarify this please.

I am not working and my spouse is a 40% taxpayer who currently pays into a pension using salary sacrifice.

If he puts enough into his pension to take him below the 40% tax band – then can I transfer £1500 of tax allowance to him- saving him £230 in tax?

So for example -

2017/2018

Even with the pension payments that are automatically taken each month he will still be in the 40% tax band by about £700 by the end of the financial year.
If he made a direct payment of £700 to his pension scheme before the end of March– can I then apply for the marriage allowance 2017/2018?

2018/2019 on

If he ups the percentage he is paying into the pension (via salary sacrifice) to ensure that he is not paying any 40% tax can I then apply for the marriage allowance from 2018/2019 on?

Mnd

I think you are right, only thing is I don't think you need to keep claiming.once its set up its in place until you cancel it
Hope this helps

Dazed_and_confused

You are on the right lines.

Whether you are working or not is irrelevant, all that matters is your taxable income and what type of income it is. If you have no taxable income whatsoever or it is less than £10,350 then you are perfectly ok to apply for 2017:18. If you have income over £10,350 you can still apply but you may have a tax bill as a consequence although that depends on what type of income you have.

You cannot transfer £1,500. By applying you are agreeing to a reduced personal allowance of £10,350 for 2017:18 and £10,660 for 2018:19.

Your spouse doesn't get any additional allowance but gets a bit knocked off their tax bill (£230 in 2017:18).

For your spouse to be eligible he basically has to not be a higher rate payer*. You need to look at the taxable pay element on his March payslip (it's usually itemised separately to salary) and add in any additional income, company benefits like medical insurance or a company car, and any other income such as savings interest so you know his taxable income for the year.

Any personal pension payment increases the amount of 20% tax payable and he would need to pay enough so there is no 40% tax payable.

Remember a £700 payment to a personal pension or SIPP (assuming that's what you mean) is actually a gross payment of £875 once basic rate tax relief is added by the pension company.

*it's more complicated if he has any dividend income

Brynsam

Helpful links to add to the above: https://www.gov.uk/marriage-allowance
and https://www.moneysavingexpert.com/family/marriage-tax-allowance

Dazed_and_confused

Migjt be seen as helpful but the first link is not factually correct.

For UK residents there is no income limit in the Marriage Allowance tax legislation, what matters is the tax rate you pay. You could have taxable income of £50k and not be a higher rate payer and therefore be able to benefit from this.

Likewise you could have taxable income (of the right type of income) of £20k and apply and still not have any tax to pay.

xylophone

https://ion.icaew.com/taxfaculty/b/weblog/posts/the-mechanics-of-the-marriage-allowance

https://yogatax.co.uk/marriage-allowance-married-couples-allowance/

Conditions for transferee to meet

The transferee is married to, or in a civil partnership with, a person who has made a marriage allowance election which is in force for the tax year in question
The transferee is not liable for that year to income tax at the higher or additional rate or the dividend upper or additional rate
The transferee is UK resident for the year or, if non-UK resident, is eligible for personal allowances
Neither the transferee nor the transferee's spouse or civil partner makes a claim to married couple's allowance for the year.

pennywatch

Thanks all - you have been very helpful.


'The transferee is not liable for that year to income tax at the higher or additional rate or the dividend upper or additional rate'

Sorry if i'm being stupid but i'm not sure why this is highlighted - is my husband meeting this if as i said he puts the money he earns over the 40% tax bracket into his pension? i don't think he gets dividends but I will double check .

xylophone

i'm not sure why this is highlighted -

You were querying this aspect so I highlighted it in the link.

Dazed_and_confused

Basically it means as long as he isn't liable to tax at any of the tax rates quoted he will be able to benefit from Marriage Allowance (should you apply).

If he pays sufficient into pensions, either his company scheme (this usually reduces his P60 pay figure) or a personal pension/SIPP (which increases the amount of basic rate tax he can pay) then he might have income over the standard higher rate threshold but not actually be liable to higher rate tax.

There is an extra complication with dividends but may not be an issue for him.

greenglide

Basically it means as long as he isn't liable to tax at any of the tax rates quoted he will be able to benefit from Marriage Allowance (should you apply).

Provided that he is still below the threshold after the benefit is applied.

I had a new tax calculation today which rejected my marriage allowance for this reason. It was all tied up with redundancy and having the redundancy pay paid into my pension. This got me out of the HRT but I forgot about the transferred amount:-(

Dazed_and_confused

No, Marriage Allowance does not have any impact on whether you are pay higher rate tax or not, it simply entitles you to a credit/deduction off your overall tax bill.

There is one very weird situation involving dividends where you can lose Marriage Allowance without actually paying higher rate tax but other than that it should still apply.

Difficult to say more unless you can post details of your caclulation and which tax year it relates to?