Tax Breaks

Dazed_and_confused

Cynic that i am i'm still expecting problems with HMRC as whilst i was employed i had some of my wife's tax coding from the married persons allowance.
Previous posts on here have suggested that HMRC will take previous coding's in to account but i'm not convinced they are that savvy.
I will take a small initial amount from my pot just to get the ball rolling.

If you are still entitled to Marriage Allowance then it should be included in any new tax code notices. So if you or your spouse haven't cancelled it or been liable to higher rate tax since your spouse applied for it then you shouldn't encounter any problems.

Worth remembering though that Marriage Allowance does not entitle you to any (extra) tax free income like the Personal Allowance does. As the receiver of the allowance you are entitled to a bit knocked off your tax bill. So if you had say £13,000 wages and pension income in the current tax year the amount over £11,850 would still be taxed but then the Marriage Allowance reduces whatever tax is due by a maximum of £238.

Probably makes no difference in your situation but it does for some.

NorthernGeezer_2

Worth remembering though that Marriage Allowance does not entitle you to any (extra) tax free income like the Personal Allowance does

Thanks for the heads up on that, i would have drawn out the £13500 and got stung for the tax accordingly!

Dazed_and_confused

Assuming you aren't Scottish resident for tax purposes then taking £13,500 would give you, based on the info in this thread, taxable income of £15,500 in the current tax year.

Less Personal Allowance £11,850 leaves basic rate tax payable on £3,650 so a tax liability of £730. This is then reduced by £238 (£1,190 x 20%) to £492 tax payable for 2018:19 by the Marriage Allowance.

NorthernGeezer_2

Been thinking about this a bit more......................................
So, if my intention is to withdraw an amount from my pension below the tax threshold, there is no benefit in me taking part of my wife,s tax allowance, in fact on the contrary, it will eventually restrict the amount she can withdraw from her pension when she decides to do so.

ermine

Dazed_and_confused wrote: »

Worth remembering though that Marriage Allowance does not entitle you to any (extra) tax free income like the Personal Allowance does. As the receiver of the allowance you are entitled to a bit knocked off your tax bill. So if you had say £13,000 wages and pension income in the current tax year the amount over £11,850 would still be taxed but then the Marriage Allowance reduces whatever tax is due by a maximum of £238..

Is that the Marriage Allowance or the Married Couple's allowance? The Marriage allowance, according to HMRC

Marriage Allowance lets you transfer £1,190 of your Personal Allowance to your husband, wife or civil partner - if they earn more than you.

which would seem that the higher earning partner can earn or earn+draw from a pension up to £11850 (standard personal allowance) plus 1190 = 13040 before paying tax. The Married Couple's allowance only applies to people born before 1935

If you or your partner were born before 6 April 1935, you might benefit more as a couple by applying for Married Couple’s Allowance instead.

NorthernGeezer_2

which would seem that the higher earning partner can earn or earn+draw from a pension up to £11850 (standard personal allowance) plus 1190 = 13040 before paying tax
That was my interpretation of the marriage allowance transfer but now i'm not sure :think::think::think:

Dazed_and_confused

I was referring to Marriage Allowance, not Married Couple's Allowance.

The person who applies for Marriage Allowance is giving up part of their Personal Allowance but the spouse does not get an extra allowance, they get a reduction in their tax bill. It may not make any difference in this situation but it does for some.

For the current tax year this would mean

Mrs Northern Geezer would have a reduced Personal Allowance of £10,660 and then be taxed at the appropriate rate on any income over that.

Northern Geezer would have a Personal Allowance of £11,850 and then be taxed at the appropriate rate on any income over that. But when the tax liability has been calculated £238 is knocked off, this is the Marriage Allowance (£1,190 x 20%).

ermine

Dazed_and_confused wrote: »

For the current tax year this would mean

Mrs Northern Geezer would have a reduced Personal Allowance of £10,660 and then be taxed at the appropriate rate on any income over that.

Northern Geezer would have a Personal Allowance of £11,850 and then be taxed at the appropriate rate on any income over that. But when the tax liability has been calculated £238 is knocked off, this is the Marriage Allowance (£1,190 x 20%).

Maybe I am being really dense here, but let's go for it:


One, the lower earner must earn less than the personal allowance less the Marriage Allowance they are giving. As HMRC sez

To benefit as a couple, you (as the lower earner) must have an income of £11,850 or less.

So let's assume Mrs NG earns 8k, say, so she can live with a personal allowance of 10,660

Let's assume Mr NG takes from his pension plus his earnings £11850 plus £1190, so £13040. 11850 he gets tax-free, so he is taxed 1190/5=£238

But the Marriage allowance refunds him that. It is effectively the same as if the 1190 allowance were added to his personal allowance, which is how HMRC explain it. Sure, if he earn+pension draws more than 13040 he gets to pay tax on it - say the total is £23040k then he gets to pay 20% of the 10k over. If he earns 12850 then ordinarily he gets to pay 20% of 1000 in tax but the marriage allowance makes his personal allowance 13040 so he takes home all of it free of tax. He doesn't get a win of £234 in that case, just £200

Maybe it's my thought processes that make it much simpler to see this as an increase in personal allowance rather than a lump sum tax rebate, but I like how HMRC describe it. Presumably there are edge cases where it makes sense to transfer only part of the personal allowance, say Mrs NG earned 11k and Mr NG earned 12700. In that case she'd only transfer £850 of the allowance, they would both not pay any tax on their income.

Dazed_and_confused

Marriage Allowance is all or nothing, Mrs Northern Geezer cannot choose to just give up £850 of her Personal Allowance.

In the example you give Mrs Northern Geezer would be liable to pay tax on £340 of her income although the amount of tax payable would depend on what type of income her £11,000 consisted of.

Northern Geezer would be entitled to the tax reduction of £238.

One, the lower earner must earn less than the personal allowance less the Marriage Allowance they are giving

There is no such rule as far as Marriage Allowance is concerned. A basic rate payer earning £40,000 is eligible to apply if they wish. There would be no benefit to the couple overall in doing so but the basic rate payer is eligible.

You are also forgetting about the three 0% tax rates which currently exist. Someone with income of £18,660 could apply and still not be liable to pay any tax even with the reduced Personal Allowance of £10,660.

The distinction between Marriage Allowance being an extra allowance (which it isn't) and a tax reduction is particularly important for anyone who has a deferred State Pension.

Using the £13,040 example - that person won't have any tax to actually pay on their normal pension income because of the Marriage Allowance credit but they are liable to basic rate tax and that means any State Pension lump sum would be taxed at 20% rather than being not being liable for tax. For someone who has deferred their State Pension for a few years that could easily be a bill running into many thousands of pounds even though they don't have any tax to pay on their other pension income.

NorthernGeezer_2

Our situation at the moments is as follows........................
The present Mrs NG works part-time, pays no tax and wont, and has already transferred part of her tax allowance to myself previously.
I retired at the end of April having earned 1 months salary in this tax year, i have no other earnings except what i withdraw from my pension pot.
Without getting in to the nitty gritty of it my understanding of the tax implication is that i could 'earn' (withdraw) £13040 without paying any tax.
Are there any other factors to consider in all of this?
Would it be easier to just take my £11850, its not like the extra £1190 is needed?
The other thing i need to consider in the future is that when she retires in October 2021 i will be giving her back the tax allowance to allow her to 'earn' (withdraw) up to the maximum tax free allowable from her pension pot.