Marriage Allowance - What if my tax code is less than 1250L? (plus timing question added)

Sea_Shell

A quick question if I may...( I did post this in the HMRC interest thread, but suggested here would be better)

I am now a non-working person, but whilst I was working (part-time) I, in the 17-18 tax year, earned £1270 in interest.   In the 18-19 Tax year I earned £911.  

HMRC reduced my tax code by these amounts to 1058L and 1158L respectively.

In the 19-20 tax year I earned £813 interest.   My earnings though work were only £3600 (April 19 to July 19).

(20-21 interest will be much reduced!!!)

My tax code is still showing as 1158L, based on the £911 above.

At some point before the beginning of the next tax year, I want to give my husband my 10% so that his PA can increase to £13750 (as he starts drawdown)

So my question is, do I get to transfer £1250 of PA to my husband or is it only 10% of my current PA that gets transferred.     Do I need to first get HMRC to amend my tax code back to 1250L ?

If so, what's the easiest way of doing that?

Thanks

Jeremy535897

If you are a basic rate taxpayer, you can earn £1,000 interest tax free. If your total taxable income was less than £17,500 in 2017/18, you should not have paid tax on your savings income unless it was over £5,000. Did you actually pay any tax in 2017/18 and 2018/19?

The marriage tax allowance transfer will be £1,250, whatever your code, for 2020/21. Your husband has to be paying basic rate tax only.

Dazed_and_C0nfused

You are confusing your Personal Allowance with your tax code allowances.

If your adjusted net income is less than £100k then you can only have a Personal Allowance of £12,500 or £11,250.

You cannot have a tax code of 1250L but that is irrelevant to your question.

And your husband cannot have a Personal Allowance greater than £12,500.  He will get a £250 reduction in his tax liability (less if his liability is less than £250).

Sea_Shell

Jeremy535897 said:

If you are a basic rate taxpayer, you can earn £1,000 interest tax free. If your total taxable income was less than £17,500 in 2017/18, you should not have paid tax on your savings income unless it was over £5,000. Did you actually pay any tax in 2017/18 and 2018/19?

The marriage tax allowance transfer will be £1,250, whatever your code, for 2020/21. Your husband has to be paying basic rate tax only.

No i didn't pay any tax, that's why I didn't push to get my code amended before now.

Husband will hopefully not be a taxpayer either, as he'll draw out up to the combined PA.   Well that's how I understood it to happen.

Sea_Shell

Dazed_and_C0nfused said:

You are confusing your Personal Allowance with your tax code allowances.

If your adjusted net income is less than £100k then you can only have a Personal Allowance of £12,500 or £11,250.

You cannot have a tax code of 1250L but that is irrelevant to your question.

And your husband cannot have a Personal Allowance greater than £12,500.  He will get a £250 reduction in his tax liability (less if his liability is less than £250).

So if I transfer my £1250 to my husband, can my husband then take £13,750 out of his pension each year and not pay tax?
(he will have already taken the 25% tax-free lump sum)

Dazed_and_C0nfused

Depends on where he is resident for tax purposes but probably yes.

If he is UK resident not Scottish then he would be liable to tax on £1,250 (x 20% = £250) but the the tax due would be reduced to nil as he gets a £250 reduction from the Marriage Allowance tax credit.

One consequence of that will be that he has used £1,250 of his basic rate band and therefore his savings starter rate band will be reduced from £5,000 to £3,750.

Why do you think your tax codes have been wrong??

Sea_Shell

Dazed_and_C0nfused said:

Depends on where he is resident for tax purposes but probably yes.

If he is UK resident not Scottish then he would be liable to tax on £1,250 (x 20% = £250) but the the tax due would be reduced to nil as he gets a £250 reduction from the Marriage Allowance tax credit.

One consequence of that will be that he has used £1,250 of his basic rate band and therefore his savings starter rate band will be reduced from £5,000 to £3,750.

Why do you think your tax codes have been wrong??

We are in England.

I did not think my code was wrong, just that I was concerned that it would effect the amount of Marriage allowance i could transfer.    If its £1250 regardless of my code, then that's fine.     

DH isn't going to have any other income, other than some interest, but won't exceed the starter rate band.

Sea_Shell

The plan is....

DH turns 55 in Sept 2021, so in the Apr 2021-2022 tax year.
Currently not working, not a tax-payer.
He has 2 small pots totalling £9100, which he'll take at 55.
He'll also earn approx £1500 in interest, during that period
He'll take 25% lump sum from other DC pensions (approx £40k), but NOT start drawdown.   Re-invest in our ISA's.

In May 2022, he'll start drawdown of his DC's, set to the max he can withdraw per month, £1145 pm gross (based on current allowances).

We'll either live off this, or spend cash float and re-invest, depending on market conditions.

This will then be re-evaluated once DB and state pensions come into play (65+)

I'm not 55 until 2026.

Dazed_and_C0nfused

Ok, just you had previously said,

No i didn't pay any tax, that's why I didn't push to get my code amended before now.

Which seemed to suggest you thought there was something wrong with it.  There are regular posters on here and the savings board who seem to thing they are entitled to the savings nil rate band (aka Personal Savings Allowance) when their income is far too low for it to be available (or of use) to them and seem to think their tax codes are wrong because interest in included as a tax code deduction.

zagfles

Dazed_and_C0nfused said:

Ok, just you had previously said,

No i didn't pay any tax, that's why I didn't push to get my code amended before now.

Which seemed to suggest you thought there was something wrong with it.  There are regular posters on here and the savings board who seem to thing they are entitled to the savings nil rate band (aka Personal Savings Allowance) when their income is far too low for it to be available (or of use) to them and seem to think their tax codes are wrong because interest in included as a tax code deduction.

What is the point of deducting interest from the tax code of someone expected to earn less than the personal allowance?

Do you think the tax code is supposed to reflect the amount of personal allowance available? If it does, why do people receiving a marriage allowance transfer have their tax code increased? Why do higher rate taxpayers paying into a RAS pension get their tax code increased by (usually) half the amount of their gross contributions? In both these cases, there is no additional personal allowance, but the tax code is increased by a fiddle factor which pretends there is, and which usually results in the correct tax being paid. The tax code does NOT reflect the personal allowance. It's a best guess at a code that would result in the correct amount of tax being paid - but if things change eg the higher rate taxpayer changes their level of contributions, tax may end up wrong.

So for people earning less than the PA, what is the best guess at a tax code most likely to result in the correct tax being paid if things change (eg earnings or interest increase) do you think? One which deducts untaxed interest, or one which doesn't?

RG2015

Dazed_and_C0nfused said:

Ok, just you had previously said,

No i didn't pay any tax, that's why I didn't push to get my code amended before now.

Which seemed to suggest you thought there was something wrong with it.  There are regular posters on here and the savings board who seem to thing they are entitled to the savings nil rate band (aka Personal Savings Allowance) when their income is far too low for it to be available (or of use) to them and seem to think their tax codes are wrong because interest in included as a tax code deduction.

I believe that many people use logic, semantics and common sense to interpret tax rules. Sadly, tax rules often fail to comply with these basic tests.

HMRC themselves refer to the nil rate tax band as a personal savings allowance, so it is little surprise that many people assume that this is a tax allowance. The personal allowance of £12,500 leads to a basic tax code of 1250 so many people assume that the tax code and tax free allowance are interchangeable after applying an arithmetical conversion factor of 10.

I also believe that experienced users do not help the uninitiated by appearing to berate them for their understandable lack of knowledge. This in turn leads to wholly unnecessary arguments about the interpretation of confusing tax rules.