Tax free into wife's pension

kidmugsy

Dazed_and_confused wrote: »

Looking at her State Pension is a good shout

Indeed. He could also look at ensuring that their cash accounts are in her name and managed to maximise interest. It's easy to get a higher interest rate than Cash ISAs pay just by using non-ISA accounts.

OldBeanz

Dazed_and_confused wrote: »

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Being under the Personal Allowance isn't a requirement to be eligible to successfully apply for Marriage Allowance. But the potential recipient being an additional (or higher) rate taxpayer does prevent it.
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Hi again we discussed this on the other forum. So my wife just earns over the Personal Allowance but can AVC via the LGPS to increase her TF lump sum when she draws her pension. As I am now a standard rate tax payer could she grant this allowance to me allowing her to AVC more and me to pay less tax? It is not how I read the regs but would be happy to be proved wrong.

Dazed_and_confused

I'm uncertain, under what common circumstance*, how the lower paid partner can earn above the personal allowance, yet not pay income tax, and still allow transfer of the personal allowance...

To be clear there are two things to consider, first is eligibility. Most people are eligible, being a higher rate payer is the main reason someone wouldn't be eligible.

Secondly there is benefit. Plenty are eligible but couldn't benefit i.e. couple both with taxable salary of £40,000 and no other income are both eligible but one would save £238 and the other would pay £238 more (current tax year). So no benefit overall.

But you could easily have income over the Personal Allowance and still, as part of a couple, be able to benefit.

For example,

Pension income £10,660
Savings interest £6,000
Dividend income £2,000
Total income £18,660
Less Personal Allowance £10,660 (as Marriage Allowance transferor)
Income to be taxed £8,000
£5,000 x 0% = £0.00 (savings starter rate)
£1,000 x 0% = £0.00 (savings nil rate)
£2,000 x 0% = £0.00 (dividend nil rate)

That is an extreme example but if you have the correct type of income then it isn't that difficult to have income above the Personal Allowance and still be able (as part of a couple) to benefit.

And if you are Scottish resident for tax purposes you can play the 19% - 20% trick. Make yourself liable to pay tax at 19% whilst your spouse benefits by 20%.

Admittedly very marginal gains but some will no doubt see it as being worth £10 to do.

Dazed_and_confused

Hi again we discussed this on the other forum. So my wife just earns over the Personal Allowance but can AVC via the LGPS to increase her TF lump sum when she draws her pension. As I am now a standard rate tax payer could she grant this allowance to me allowing her to AVC more and me to pay less tax? It is not how I read the regs but would be happy to be proved wrong.

Her income tax position is based on her taxable earnings not her "salary".

She could have salary of £13,000 but if she pays 10% pension contribution into her employers pension scheme using a net pay arrangement her income from this job for tax purposes would be £11,700.

You need to ascertain on what basis the pension contributions would be made (relief at source like a personal pension or SIPP has no impact on her taxable income).

And look at her total taxable income for the year overall, and types of income, when working out if it is worth her applying for Marriage Allowance.

Some situations are less clear cut. For example it might be beneficial for your wife to apply and pay some tax if you were saving more than she ends up having to pay extra by applying.

Dazed_and_confused

It is not how I read the regs but would be happy to be proved wrong.

By "regs" do you information on gov.uk or the actual tax legislation. Or something else?

What bit is confusing/complicating things?

Nimrod123

Thanks, but I am restricted to £10k pa which I am using.

OldBeanz

Dazed_and_confused wrote: »

By "regs" do you information on gov.uk or the actual tax legislation. Or something else?

What bit is confusing/complicating things?

My wife is a teaching assistant and her pension and AVCs are a net pay arrangement through the LGPS. The first question asked when applying is what is her salary and I have never read of anyone adjusting their salary by pension to claim this benefit in comparison to those on HRT doing similar to bring their salary down to claim child benefit. I assumed that as soon as you told HMG that both of you paid tax there was no benefit in doing this so why would they go to the bother of doing so.
Have to start doing the sums for next financial year.

michaels

Could your wife start a small business providing laundry, ironing and packed lunch services which you could then purchase, as long as her profit is less than the personal allowance then she should be able to put it all into her pension and still get 20% tax relief despite not having actually paid any tax.....

If you could claim such expenses against your income it would be double bubble....

Dazed_and_confused

Don't let romance get in the way of a bit of tax efficiency

zagfles

michaels wrote: »

Could your wife start a small business providing laundry, ironing and packed lunch services which you could then purchase, as long as her profit is less than the personal allowance then she should be able to put it all into her pension and still get 20% tax relief despite not having actually paid any tax.....

If you could claim such expenses against your income it would be double bubble....

There is some law along the lines that spouses can't employ each other in a domestic capacity, to prevent exactly this type of arrangement presumably.