Married Couple Tax Question - On the cusp / now over

20vt-rs

My wife has transferred part of her allowance to me as she was not paying tax previously and I am on the cusp of 40% tax, but still remain 20% band. She is paid hourly so it is hard to calculate yearly income exact, but last tax year has ended up working quite a few more hours and has now earned over the tax free allowance. Do I need to do anything with HMRC to transfer this back, or is it still beneficial to keep her part of the allowance, or does it make no odds?
This tax year probably looks to be the same, I am sacrificing salary to pension to keep me just within the 20% band but it's only a few hundred off, including the additional allowance I have from the marriage allowance transfer.
Can we leave it as is, or should we change it back? Wife has paid tax, I am not sure if it makes no odds or if her tax paid would be lower than me. Also trying to avoid any unwanted surprises from HMRC in the future!
Thanks.

Dazed_and_C0nfused

Each person is eligible as long as they don't become a higher rate payer.

The key thing here is how much you can, as a couple, benefit from it.

If your wife has paid say £100 in tax then she could get all that back.  But that would be at a cost of £252 to you.  So overall still better to leave Marriage Allowance in place.

Although your wife might not see it quite like that 😳.  But then you could always gift her £100 from your £252 saving!

Once she is paying £252 or more in tax there is unlikely to be any benefit in it but equally you wouldn't save anything overall by changing it.  But it would be more equitable for your wife.

HMRC will only interfere if either of you become liable to higher rate tax (when the final position is reviewed after the end of each tax year).

20vt-rs

Dazed_and_C0nfused said:

Each person is eligible as long as they don't become a higher rate payer.

The key thing here is how much you can, as a couple, benefit from it.

If your wife has paid say £100 in tax then she could get all that back.  But that would be at a cost of £252 to you.  So overall still better to leave Marriage Allowance in place.

Although your wife might not see it quite like that 😳.  But then you could always gift her £100 from your £252 saving!

Once she is paying £252 or more in tax there is unlikely to be any benefit in it but equally you wouldn't save anything overall by changing it.  But it would be more equitable for your wife.

HMRC will only interfere if either of you become liable to higher rate tax (when the final position is reviewed after the end of each tax year).

Hi there, thank you so much for reviewing and clarifying that. I did think it would be better for wifey to pay the tax but wasn't sure if this was strictly ok. But since we both will not be going into 40% then it sounds like we are all good, although I may be in the dog house for saving a bit of tax and making her pay
Looking at the end of year summary, she paid approx. £360 tax in FY 22/23, but might be best to leave as is in case this tax year she earns below the threshold again, but also I would tip into 40% tax not having the allocation, so would need to sacrifice more to pension.

[Deleted User]

20vt-rs said:

Dazed_and_C0nfused said:

Each person is eligible as long as they don't become a higher rate payer.

The key thing here is how much you can, as a couple, benefit from it.

If your wife has paid say £100 in tax then she could get all that back.  But that would be at a cost of £252 to you.  So overall still better to leave Marriage Allowance in place.

Although your wife might not see it quite like that 😳.  But then you could always gift her £100 from your £252 saving!

Once she is paying £252 or more in tax there is unlikely to be any benefit in it but equally you wouldn't save anything overall by changing it.  But it would be more equitable for your wife.

HMRC will only interfere if either of you become liable to higher rate tax (when the final position is reviewed after the end of each tax year).

Hi there, thank you so much for reviewing and clarifying that. I did think it would be better for wifey to pay the tax but wasn't sure if this was strictly ok. But since we both will not be going into 40% then it sounds like we are all good, although I may be in the dog house for saving a bit of tax and making her pay
Looking at the end of year summary, she paid approx. £360 tax in FY 22/23, but might be best to leave as is in case this tax year she earns below the threshold again, but also I would tip into 40% tax not having the allocation, so would need to sacrifice more to pension.

I think that you misunderstand the concept of the marriage allowance transfer. Not having the marriage allowance cannot ‘tip you into 40% tax’ as it does not increase the amount above which you would pay 40% tax. It’s actually a fixed deduction of £1260 at 20% (£252) although, practically, thus is achieved by increasing your allowances by 1260.

Whether you benefit from marriage is dependent on your adjusted net income, not your tax rate. If it’s over 50270 you don’t qualify. 

Dazed_and_C0nfused

[Deleted User] said:

20vt-rs said:

Dazed_and_C0nfused said:

Each person is eligible as long as they don't become a higher rate payer.

The key thing here is how much you can, as a couple, benefit from it.

If your wife has paid say £100 in tax then she could get all that back.  But that would be at a cost of £252 to you.  So overall still better to leave Marriage Allowance in place.

Although your wife might not see it quite like that 😳.  But then you could always gift her £100 from your £252 saving!

Once she is paying £252 or more in tax there is unlikely to be any benefit in it but equally you wouldn't save anything overall by changing it.  But it would be more equitable for your wife.

HMRC will only interfere if either of you become liable to higher rate tax (when the final position is reviewed after the end of each tax year).

Hi there, thank you so much for reviewing and clarifying that. I did think it would be better for wifey to pay the tax but wasn't sure if this was strictly ok. But since we both will not be going into 40% then it sounds like we are all good, although I may be in the dog house for saving a bit of tax and making her pay
Looking at the end of year summary, she paid approx. £360 tax in FY 22/23, but might be best to leave as is in case this tax year she earns below the threshold again, but also I would tip into 40% tax not having the allocation, so would need to sacrifice more to pension.

I think that you misunderstand the concept of the marriage allowance transfer. Not having the marriage allowance cannot ‘tip you into 40% tax’ as it does not increase the amount above which you would pay 40% tax. It’s actually a fixed deduction of £1260 at 20% (£252) although, practically, thus is achieved by increasing your allowances by 1260.

Whether you benefit from marriage is dependent on your adjusted net income, not your tax rate. If it’s over 50270 you don’t qualify. 

This is key.  As the recipient you totally ignore Marriage Allowance when determining your highest tax rate.

It's a tax reducer, knocking £252 off your liability, not increasing your allowances at all.

20vt-rs

Thanks both for clarifying this, I did not fully understand and thought that the transfer would extend my 20% allowance, but this is good to know. At least I am able to calculate things to keep me within 20% bracket (e.g. pension etc).