Scotland - Income tax quirk for Marriage Allowance?

olip74

This topic may only be of interest for tax nerds or a narrow sliver of tax payers but anyway...

I claim Marriage Allowance and live in Scotland. I started the year on tax code S1304M as one might expect. However in July my tax code was amended without notification to S1298M. Now the tax implications of this are minimal (c. £12.60 over the year at the Intermediate Rate of 21%) however I queried it with HMRC. They didn't seem to be very clued up but eventually I got someone who told me this was an adjustment for Scotland. As we have a starter rate of 19% apparently this favours those claiming Marriage Allowance in Scotland. I have my doubts about this and wondered if anyone could clarify the following points, which occured to me?

Firstly the policy intention of the new tax bands in Scotland was to graduate income tax compared to rUK and, indeed, increase the overall take. Thus, yes, those on incomes up to £24,000 in Scotland (19% and 20% bands) and claiming Marriage Allowance would be £8.10 better off according to my calculations. However those at the upper end of the 21% Intermediate rate (£43,430) would be a full £186.20 worse off. Why is it necessary to take away some of the Marriage Allowance?

Secondly, this may have implications for tax planning for those in Scotland. For example, those not far into the Higher rate may have calculated to the pound the amount they need to contribute to a pension to remain under the Higher rate and thereby maintain eligibility for Marriage Allowance. Surely the change in tax code should have been communicated to all?

It all makes me doubt whether this is an actual policy as I've been told or whether HMRC have simply messed up my tax code somehow. Anyone else had a similar issue?

Alice_Holt

Best place for this is the Tax board.

You have posted this on the Benefits board - have a look at other threads on here!

The Tax Credits reference in the boards title may have confused you. Tax Credits are a form of benefit paid to low income households.

Dazed_and_confused

You, as the recipient, cannot "claim" Marriage Allowance, I presume your spouse has applied for it and you have received it as a result of this.

The only difference in Scotland is that the tax code adjustment initially required to give you the benefit of Marriage Allowance has to be different if you are a 19% or 21% Scottish resident taxpayer.

Ultimately you still get the same benefit as everyone elsewhere in the UK, a tax reduction of £238 in the current tax year (£1,190 x 20%).

As the recipient Marriage Allowance itself and your tax code has absolutely no bearing whatsoever on whether you are a higher rate payer or not.

Receiving Marriage Allowance does not entitle you to any extra tax allowances. You get a fixed sum knocked off your tax liability (the £238 in the current tax year).

But to ensure you receive the benefit of Marriage Allowance during the year HMRC have to include something in your tax code (as they would for Married Couple's Allowance) and it is that provisional tax code entry which needs to be adjusted for the 19% and 21% payers.

If you check your tax code (for 2018:19) on your Personal Tax Account on gov.uk you will probably find the Marriage Allowance entry is now £1,134 (1134 x 21% = £238).

If you were a 19% payer it would be increased to £1,253 (1253 x 19% = £238).

olip74

Dazed_and_confused wrote: »

You, as the recipient, cannot "claim" Marriage Allowance, I presume your spouse has applied for it and you have received it as a result of this.

The only difference in Scotland is that the tax code adjustment initially required to give you the benefit of Marriage Allowance has to be different if you are a 19% or 21% Scottish resident taxpayer.

Ultimately you still get the same benefit as everyone elsewhere in the UK, a tax reduction of £238 in the current tax year (£1,190 x 20%).

As the recipient Marriage Allowance itself and your tax code has absolutely no bearing whatsoever on whether you are a higher rate payer or not.

Receiving Marriage Allowance does not entitle you to any extra tax allowances. You get a fixed sum knocked off your tax liability (the £238 in the current tax year).

But to ensure you receive the benefit of Marriage Allowance during the year HMRC have to include something in your tax code (as they would for Married Couple's Allowance) and it is that provisional tax code entry which needs to be adjusted for the 19% and 21% payers.

If you check your tax code (for 2018:19) on your Personal Tax Account on gov.uk you will probably find the Marriage Allowance entry is now £1,134 (1134 x 21% = £238).

If you were a 19% payer it would be increased to £1,253 (1253 x 19% = £238).

That explains it much better than HMRC did, thanks!