Tax Breaks

Dazed_and_confused

You can have total taxable pension income or wages of £13,040 in the current tax year without incurring any overall tax liability.

The tax due on £13,040 (outside of Scotland) is £238 and this will be reduced to nil by the Marriage Allowance credit. You don't have a higher Personal Allowance of £13,040.

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


You should think carefully about this as it would mean you will lose all of the benefit of your wife applying in the first place right back to whichever tax year she first applied for. Information from gov.uk explains more about changes in circumstances. When the time comes it may be more sensible for your wife to cancel her application.

https://www.gov.uk/marriage-allowance/if-your-circumstances-change

ermine

Dazed_and_confused wrote: »

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

Thank you - this is clearly the part I had been missing. Rereading HMRC on that I can sort of see it, though if it's all or nothing then this doesn't look right to me

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

which should be the lower earner must have an income of 10660 or less, or for greatest accuracy < 11255, which is the cross-point where what the lower earner loses in paying more tax is due to their lowered PA is just outweighed by the higher earner's partial refund. They say

This reduces their tax by up to £238

which sort of implies if they wouldn't actually pay tax of £238 they don't get the full 238 refund. Fortunately when we do that there won't be such an edge case, so it should be the full monty.

xylophone

https://www.moneysavingexpert.com/family/marriage-tax-allowance/

This is because you have to transfer £1,190 to take advantage ; nothing more, nothing less.





https://www.taxadvisermagazine.com/article/marriage-allowance

Although the transferring partner has a reduced personal allowance after marriage allowance is claimed, the recipient does not receive an increased personal allowance, but obtains a tax reduction against their tax liability. This point does not always seem to be picked up by HMRC officials.[/I]

http://www.chalkleys.com/tax-saving-tip-marriage-allowance/

Above shows 16/17 PA but presumably the principle remains the same.

Receiving the Additional Tax Allowance

If the higher earning partner is employed or receives a pension, they'll receive the additional tax allowance by HMRC adjusting their tax code. An M will also be added to the end of their tax code to show that £1,150 of their partner's Personal Allowance has been transferred to them. For 2017/18, the numerical part of their tax code should increase by 115, e.g. a tax code of 1150L will become 1265M.

The lower earning partner's tax code will also change, reducing by the same value, and include an N added at the end. For example, a 2017/18 tax code of 1150L will become 1035N to show that they've transferred £1,150 of their Personal Allowance to their partner.

HMRC advise that it can take up to two months for the tax code changes.



I don't know anybody who claims this allowance so can't ask but I have to say I'm mystified.....

NorthernGeezer_2

My tax code on my April 18 payslip is 1304M
The tax code on Mrs NG April 18 payslip is 990N
It is worth remembering that whilst i was employed and earning a salary, i was paying tax accordingly, and i'm assuming therefore that the first £13040 of my salary was the tax free portion.

I'm struggling to see what changes now that i have retired.
I'm still 'earning' a taxable income, albiet from my pension and as long as i don't draw out more than £13040 a year i shouldn't pay any tax.