Marriage Allowance

marlot

My wife is a non-taxpayer and has transferred 10% of her personal allowance to me. My pension is a mix of DB and DC. Neither of us have any other allowances.

We're refurbishing the house, so will be drawing down quite heavily for 2-3 years.

I'm trying to optimise the DC drawdown so that I stay within basic rate. I'm a bit confused about how the marriage allowance works.

Do I aim to have total income of just under £50k? Or do I aim for just under £51,250?

Edited to add: In England

Dazed_and_confused

No one can have a Personal Allowance greater than £12,500 in the current tax year.

If you are the Marriage Allowance transferor you have a Personal Allowance of £11,250

If you are the Marriage Allowance recipient you have a Personal Allowance of £12,500. And you get a tax deduction of £250 off your tax liability.

So if you had pension income of £51,250 (and aren't Scottish resident for tax purposes) you would be liable to higher rate tax on £1,250 and would no longer be entitled to Marriage Allowance.

If you have any savings income or dividend income that needs to be factored in and there is one situation where having dividend income taxed at 0% can make you ineligible for Marriage Allowance. If you have dividend income you need to understand this or it could cost you £250.

A high effective rate of tax if it is £1 of dividend income that tips the scales :eek:

marlot

Thanks! That answers my question perfectly, and some additional 'gotchas' to watch out for too.

I'll have dividend income of about £50 from a few shares. Can you tell me a bit more on the issue?

Dazed_and_confused

There is no "allowance" for savings income (or dividends).

Non ISA savings interest is all taxable but may be taxed at 0% courtesy of either the savings starter rate of tax or savings nil rate.

If any savings interest ends up being taxed at 40% (savings higher rate) then you will not be entitled to Marriage Allowance.

If any dividend income ends up being taxed at 32.5% (dividend higher rate) then you will not be entitled to Marriage Allowance.

If any dividend income ends up being taxed at 0% but if it weren't for the dividend nil rate (upto £2,000 taxed at 0%) it would have been taxed at 32.5% then you will not be entitled to Marriage Allowance.

Assuming you have no Gift Aid or relief at source pension contributions the safest option is to stick within the standard basic rate limit of £50,000.

If you need more income then it gets much complicated although Gift Aid or relief at source pension contributions would both increase your basic rate limit.

marlot

Thank you. Hugely appreciated.