Marriage tax allowance and other 50k cliff edges

Bossworld

I realise this is a nice problem to have but I wasn't aware of quite how quickly things shift as soon as your taxable income for the year gets to the 50k mark. High-income child benefit charge, ineligibility for the married tax allowance, plus the more obvious bits like income tax at 40% (obviously somewhat tempered by NI dropping to 2%).

I think I'll be OK for 21/22 as I'll make additional salary sacrifice pension contributions next March if necessary, but was seeking some advice on the married tax allowance to avoid any nasty shocks.

My partner is about to start out as self employed (was made redundant last year) but unless there's a sudden shift, I don't think her income will be more than 5k for the year.  Hence I took on some of her tax allowance last year, and it seems to have auto renewed by changing my tax code for this year.

Working on the (hopeful) assumption I'll not be able to throw everything over the limits at Cycle2Work and additional pension contributions, is it just a case of notifying HMRC in advance of the 22/23 tax year starting on April 6 2022?  Or is it more complicated than that?

sheramber

details here

https://www.gov.uk/marriage-allowance/if-your-circumstances-change

Bossworld

Thank you, don’t know why that didn’t come up when I searched!

I spotted this and a caveat around underpaying tax. Dunno if anyone has any experience as to whether it’s best to cancel in advance of a new tax year then?

After you cancel

If you cancel because of a change of income, the allowance will run until the end of the tax year (5 April).

Dazed_and_C0nfused

Marriage Allowance eligibility isn't dependent on your taxable income, it is which tax rates you are liable at.

So you could have £60k or £200k taxable income and still be eligible if you are not liable to higher rate tax.

One thing to take account of is if you have dividend income and it is taxed at the dividend nil rate but if it wasn't for that rate band it would be taxed at higher rate them you are classed as a higher rate payer and will lose Marriage Allowance.

Bossworld

Dazed_and_C0nfused said:

Marriage Allowance eligibility isn't dependent on your taxable income, it is which tax rates you are liable at.

So you could have £60k or £200k taxable income and still be eligible if you are not liable to higher rate tax.

One thing to take account of is if you have dividend income and it is taxed at the dividend nil rate but if it wasn't for that rate band it would be taxed at higher rate them you are classed as a higher rate payer and will lose Marriage Allowance.

Sorry if it wasn't clear from my opening post, I'm on PAYE, have no directorships, dividends or anything similar.

The MSE article https://www.moneysavingexpert.com/family/marriage-tax-allowance/ suggests it's an absolute £50,270 cut off, which I assume is based upon the standard tax code 1257L + 37,700 bandwidth. 

But a lot of people will be getting an additional £312 added to their tax allowance for homeworking for 21/22 (so roughly 1288L as a code, giving a ~£50,580 cut off).  You've also stated it's tax rates rather than income.  Is the Gov.uk calculator just too simple? (it doesn't ask for tax code, as an example).

Dazed_and_C0nfused

The MSE article doesn't really say that.

It actually says,

The other partner needs to be a basic 20% rate taxpayer (higher or additional-rate taxpayers aren't eligible for this allowance). This means you'd normally need to earn less than £50,270 (see previous tax year rates) or if you live in Scotland, £43,662 (see previous tax year rates).

The legislation for Marriage Allowance means that to be eligible the applicant and recipient must both not be liable to higher rate tax (plus the dividend quirk previously mentioned).

There is a better explanation here.

https://www.litrg.org.uk/tax-guides/tax-basics/what-tax-allowances-am-i-entitled

Your tax code has no relevance for Marriage Allowance.

A tax code of 1288L could be as simple as Personal Allowance £12,570 + Expenses £312.  Or it could be made up countless entries which arrive at tax code allowances of £12880-£12889.

It is your actual tax position at the end of the tax year which ultimately establishes eligibility for Marriage Allowance.

Bossworld

Dazed_and_C0nfused said:

The MSE article doesn't really say that.

It actually says,

The other partner needs to be a basic 20% rate taxpayer (higher or additional-rate taxpayers aren't eligible for this allowance). This means you'd normally need to earn less than £50,270 (see previous tax year rates) or if you live in Scotland, £43,662 (see previous tax year rates).

The legislation for Marriage Allowance means that to be eligible the applicant and recipient must both not be liable to higher rate tax (plus the dividend quirk previously mentioned).

There is a better explanation here.

https://www.litrg.org.uk/tax-guides/tax-basics/what-tax-allowances-am-i-entitled

Your tax code has no relevance for Marriage Allowance.

A tax code of 1288L could be as simple as Personal Allowance £12,570 + Expenses £312.  Or it could be made up countless entries which arrive at tax code allowances of £12880-£12889.

It is your actual tax position at the end of the tax year which ultimately establishes eligibility for Marriage Allowance.

OK, but I'm trying to give you tangible examples of my own situation, hence the thread.  I have no other entries that contribute to my current tax code, other than standard rate + £312 bump due to £6 p/w homeworking expenses (+ £1260 current marriage allowance value).  I have nothing interesting like dividends, high interest from savings, pensions or BIKs.

I'm currently using several salary sacrifices like cycle2work and additional pension contributions to keep myself below the 50k mark.  That's not sustainable forever, as wages will hopefully increase and we have a bonus scheme at work.  I'm trying to work out how to avoid claiming something I'll end up having to pay back, using an educated guess at year-end income.

I'm really not trying to be difficult, but if the demonstrative figure of £50,270 on the MSE site is comprised of standard 2021/22 tax code + bandwidth, I don't understand how my (pre-MA) tax code has no relevance for marriage allowance?  I am only liable for higher rate tax, by virtue of a potential bonus taking my annual taxable pay above my cumulative free pay allowance + the £37,700 bandwidth by 05/04/22.  

From reading your link, there is a note 'If an election is withdrawn, it usually has effect for the tax year after the one in which the notice was given.' so it looks to me that I'm best to get my partner to cancel the marriage allowance in Feb/March 2022, to ensure it's not granted for the 22/23 tax year.