Marriage allowance worthwhile?

ian1944

My wife and I are considering this, but are not sure if her transferring £1250 of Personal Allowance to me would involve her paying tax. Using these estimated figures for her income this year, I wonder if some kind person could make the calculation? In as much detail as possible please, as I can't find a guide elsewhere which shows how to bring everything together.


Pension £6100
Interest £2250
Dividends £6900

Personal Allowance £11250

Dazed_and_confused

Yes it is worthwhile (assuming you haven't missed out anything relevant).

She will have to pay tax on £1,750 of the dividend income. At 7.5% = £131.25

Interest has to be taxed in full as her reduced Personal Allowance is fully utilised by the pension income and part of the dividend income. But the interest will be taxed at the savings starter rate of 0%.

You will get £250 knocked off you tax bill (assuming you pay at least £250).

So as a couple you are nearly £120 better off.

May be different in future years depending on budget announcements, tax rates etc.

ian1944

Thanks, D & C. I didn't realise that it worked like that. But isn't the £1750 remaining dividend income covered by the Dividend Allowance of £2000?

dont_use_vistaprint

I am considering this , this year for the first time. My wife makes NET £982 per month , I think there is some tax , NI and £32 payment for our family private healthcare taken off and I believe tax limits are changing this week so it may go up a little.

I will earn between 80 & 120 in total this year and have a higher tax code due to various gift aid projects we run, and now make large pension contributions from part time PAYE income but still pay HR tax.

How do I know whether to do this, what is the test ?

sheramber

Paying tax at higher rate means you are not eligible to receive the Marriage Allowance.

Dazed_and_confused

Thanks, D & C. I didn't realise that it worked like that. But isn't the £1750 remaining dividend income covered by the Dividend Allowance of £2000?

Apologies, complete brain freeze!

There is no "allowance" for dividends but the £1,750 dividend which needs to be taxed would be taxed at the dividend nil rate (0% in 2019:20).

And this would not impact the savings income being taxed at 0%.

So no tax would be payable by your wife and you could benefit, as couple, by the full £250 (providing you aren't classified as a higher rate payer).

ellectrastar

If dividends are received they’re taxed separately aren’t they? So anything over 2k allowance is taxed at 7.5%, regardless of whether you’ve used your personal allowance. Is what I thought anyway...

polymaff

ian1944 wrote: »

My wife and I are considering this, but are not sure if her transferring £1250 of Personal Allowance to me would involve her paying tax. Using these estimated figures for her income this year, I wonder if some kind person could make the calculation? In as much detail as possible please, as I can't find a guide elsewhere which shows how to bring everything together.

It is - or it has been - one of the bizarre aspects of HMRC's implementation of MAT that your wife could have had £30,000+ more dividend income - and STILL you (plural) would benefit from MAT.


Not at all what the legislators intended. Crazy, crazy world.

polymaff

ellectrastar wrote: »

If dividends are received they’re taxed separately aren’t they?

Depends what you mean by "separately". There is nothing special about dividend income versus the other components of the income. All three types of income we are looking at here have some common and some of their own procedures.

In fact the first act of tax assessment is to add them all together and then determine which class of tax payer you are: basic, high, or additional rate. The only difference about dividend processing is that it is the third component in the rigid Order of Taxation and that the first £2,000 is taxed at 0% - and that it can be allocated another dollop of 0% out of the Personal Allowances. The only implication of the Order of Taxation is that it is the dividend component that is most likely to pop out of the top of a Rate band.

ellectrastar wrote: »

So anything over 2k allowance is taxed at 7.5%, regardless of whether you’ve used your personal allowance.

Not quite. Anything over the first £2,000 plus the dollop of Personal Allowances applied will be taxed at the appropriate dividend rate(s)

dont_use_vistaprint

polymaff wrote: »

It is - or it has been - one of the bizarre aspects of HMRC's implementation of MAT that your wife could have had £30,000+ more dividend income - and STILL you (plural) would benefit from MAT.


Not at all what the legislators intended. Crazy, crazy world.

Sorry to be dumb, but what options are there so can she get get dividend income?

She could be named as a director, take a small salary and a large dividend from the profits ?

I could move savings / p2p investments into her name and into stocks that pay dividends instead of interest / growth ?

polymaff

polymaff wrote: »

It is - or it has been - one of the bizarre aspects of HMRC's implementation of MAT that your wife could have had £30,000+ more dividend income - and STILL you (plural) would benefit from MAT.

dont_use_vistaprint wrote: »

Sorry to be dumb, but what options are there so can she get get dividend income?

According to the OP, she already has dividend income - and so MAT will pay off in a way taxable savings and taxable non-savings income will not.

I was just commenting on the sort of scenario which was never intended to arise - variable benefit depending upon the nature of the taxable income.

In fact you could delete the word dividend in my posting. As long as there is £1 of dividend income sitting on top of , say, £40k+ of other taxable income - MAT pays off.

Barmy, barmy HMRC.