Confused about marriage tax allowance

Mint_choc_chip

In 2019 I requested that I transfer the standard 10% of my allowance to my husband which they did. However we hadn't received any tax statement for a few years and being busy with life we didn't notice quite honestly. It wasn't until he applied for uniform washing expenses (a whole other subject i need help with!) they sent us backdated statements. It looked like they hadn't applied the marriage tax allowance so we wrote to them. They're now saying that the 10% allowance has been applied but "only 20% of that 10% gets applied as an actual benefit". So where does the other 80% of my allowance go??! Why say I can give him 10% when actually it's only 2%?! Please can someone help me understand this? because the HMRC haven't explained that at all. Thanks

calcotti

An allowance reduces your taxable income. At standard rate tax is 20%. The actual monetary gain is the tax saved so 20% of the allowance.
https://www.gov.uk/marriage-allowance

Marriage Allowance lets you transfer £1,260 of your Personal Allowance to your husband, wife or civil partner.
This reduces their tax by up to £252 in the tax year (6 April to 5 April the next year).

Mint_choc_chip

Thanks but I still don't understand. Why is the "actual monetary gain the tax saved of 20% of the allowance"? Do you mean that it onlly match his tax bracket? so if he was a higher rate payer it would go up to match it? so where does the rest go??! There's never going to be a point at which 100% of that 10% will be paid surely?! It's very misleading.

Dazed_and_C0nfused

In the current tax year Marriage Allowance means the recipient gets a tax reduction of £252.

That is a fixed amount based on the transferred amount of £1,260 x 20%.

[Deleted User]

If he was a higher rate taxpayer he wouldn’t be able to benefit from the transfer. 

In this tax year the transfer equates to 1257 of allowances. That means that your husband can earn an additional 1257 upon which he will not pay tax. He will therefore save tax of £251.40 which is 20% of 1257. 

For example - if your husband earned 30000 his tax bill would be £3486. ((30000-12570) at 20%.) This is without the transfer.

With the transfer his tax will be £3234.60. He saves tax of £251.40.

calcotti

Mint_choc_chip said:

Thanks but I still don't understand. Why is the "actual monetary gain the tax saved of 20% of the allowance"? Do you mean that it onlly match his tax bracket? so if he was a higher rate payer it would go up to match it? so where does the rest go??! There's never going to be a point at which 100% of that 10% will be paid surely?! It's very misleading.

It is a condition of being allowed to transfer the allowance that he is not a higher rate tax payer.

A tax free allowance simply removes some of the income from tax. The saving made is the tax that would otherwise have been paid if the tax free allowance had not been applied.

The page I linked to is very clear - I can’t see anything misleading about it.

[Deleted User]

calcotti said:

Mint_choc_chip said:

Thanks but I still don't understand. Why is the "actual monetary gain the tax saved of 20% of the allowance"? Do you mean that it onlly match his tax bracket? so if he was a higher rate payer it would go up to match it? so where does the rest go??! There's never going to be a point at which 100% of that 10% will be paid surely?! It's very misleading.

The page I linked to is very clear - I can’t see anything misleading about it.

Yes - it’s very clear!

How it works

Marriage Allowance lets you transfer £1,260 of your Personal Allowance to your husband, wife or civil partner.

This reduces their tax by up to £252 in the tax year (6 April to 5 April the next year).

Mint_choc_chip

I think it could be worded better than saying "£1260 of your personal allowance", it gives the impression that you're getting more of a benefit than you are, it should specify that it is a reflection of your tax bracket and you will either get £252, £504 or £547 and not the amount the full 10%. No one will ever get £1260 unless they are taxed 100% of their earnings which no one is or ever will be so why say that?! it's impossible so it shouldn't be quoted, at all.

calcotti

Mint_choc_chip said:

I think it could be worded better than saying "£1260 of your personal allowance", 

“£1260 of your personal allowance” is correct. That is what is transferred.

Mint_choc_chip said:

it gives the impression that you're getting more of a benefit than you are,

Only if you misunderstand what a tax allowance is

Mint_choc_chip .. it should specify that it is a reflection of your tax bracket and you will either get £252, £504 or £547

The person receiving the allowance gets £252. They cannot get more than because, as already advised and as stated on the webpage, the allowance cannot be transferred if the recipient is over the standard rate of tax.

Mint_choc_chip . No one will ever get £1260 unless they are taxed 100% of their earnings which no one is or ever will be so why say that?

It isn’t what it says, you are misreading/misunderstanding it.

[Deleted User]

Mint_choc_chip said:

I think it could be worded better than saying "£1260 of your personal allowance", it gives the impression that you're getting more of a benefit than you are, it should specify that it is a reflection of your tax bracket and you will either get £252, £504 or £547 and not the amount the full 10%. No one will ever get £1260 unless they are taxed 100% of their earnings which no one is or ever will be so why say that?! it's impossible so it shouldn't be quoted, at all.

I have quoted word for word the HMRC guidance on the amount of the relief. It states ‘This reduces their tax by up to £252’. I don’t believe that could be any clearer!