Reduced personal allowance - untaxed savings

busy_dad

Morning,

My wife's personal tax allowance has been reduced slightly and the reason stated is untaxed savings.

She is forecast to earn less than the personal allowance in salary this year, so won't pay income tax despite the reduction. However we were potentially going to use the marriage tax allowance to transfer over to me, so the personal allowance reduction would affect her income tax.

I'm wondering why they have reduced her allowance? Aware that as a non tax payer she isn't entitled to (doesn't need) the 1k personal savings allowance, but there is also the 5k savings nil rate.

If her earnings increase or if she transfers some personal allowance to me so she pays income tax would the reduction be removed?

molerat

It is a thing they do if you have unused personal allowance, stupid but that is the way it is.  If you use the marriage allowance they should remove the reduction if it puts her into paying tax, if they don't a phone call will sort it.(Posted under been there, done that, got the t shirt)

nick74

Just to be clear, they haven't reduced her personal allowance, they've reduced her tax code. It is not the same thing.
She will still have her full personal allowance available.

Dazed_and_C0nfused

nick74 said:

Just to be clear, they haven't reduced her personal allowance, they've reduced her tax code. It is not the same thing.
She will still have her full personal allowance available.

And as molerat says if applying for Marriage Allowance means she has no unused allowances the deduction will be removed.

That's because instead of no tax being due on the interest by virtue of unused allowances no tax will be due because it will be taxed at the savings starter rate of 0%.

busy_dad

Thanks all that's reassuring. It still doesn't make sense to me why they do.it, but so long as things work themselves out I guess I needn't worry!

Thanks again.

Dazed_and_C0nfused

busy_dad said:

Thanks all that's reassuring. It still doesn't make sense to me why they do.it, but so long as things work themselves out I guess I needn't worry!

Thanks again.

A tax code is (or should be) based on the latest information available.

So if there was unused Personal Allowance available due to low earnings/pension income then some of those Personal Allowances are used by the interest.