Marriage allowance and savings interest

Uplander1111

My wife's sole income is the state pension and at present we have a lump sum invested in her name.  The tax position on the savings interest is that she can earn £1000 personal savings allowance and £5000 starting savings rate so the interest is tax free.  She has now transferred the £1260 marriage allowance to me (I am a standard rate tax payer).  Am I correct in my understanding that this marriage allowance transfer has no implications on the interest being tax free?

Many thanks for any help.  I have "Googled" including on the forum but didn't find a simple and definitive answer.

Dazed_and_C0nfused

Uplander1111 said:

My wife's sole income is the state pension and at present we have a lump sum invested in her name.  The tax position on the savings interest is that she can earn £1000 personal savings allowance and £5000 starting savings rate so the interest is tax free.  She has now transferred the £1260 marriage allowance to me (I am a standard rate tax payer).  Am I correct in my understanding that this marriage allowance transfer has no implications on the interest being tax free?

Many thanks for any help.  I have "Googled" including on the forum but didn't find a simple and definitive answer.

Interest from ISA's is "tax free" and applying for Marriage Allowance will have no bearing on that whatsoever.

Other interest will be taxable and applying for Marriage Allowance will impact how much interest she can have before actually having to pay tax.

How much taxable non savings non dividend income do you expect her to have in the current tax year?  This is things like taxable earnings, rental income, business profits, pension income.

Also she can only make use of the savings starter rate band and savings nil rate band (aka Personal Savings Allowance) after she has used her Personal Allowance.

LITRG have a pretty good guide here,

https://www.litrg.org.uk/tax-guides/savers-property-owners-and-other-tax-issues/savings-and-tax#Mo

Uplander1111

Thanks for that.  Her income is approximately £10,600 OAP - nothing else whatsoever.  Personal allowance being £12570 she has been able transfer the 10% marraige allowance to me.  The interest will be approximately £5000.  I just wanted to check that having transferred to marriage allowance to me this had no bearing on the £6000 interest I believe she can earn without tax.    

Dazed_and_C0nfused

Uplander1111 said:

Thanks for that.  Her income is approximately £10,600 OAP - nothing else whatsoever.  Personal allowance being £12570 she has been able transfer the 10% marraige allowance to me.  The interest will be approximately £5000.  I just wanted to check that having transferred to marriage allowance to me this had no bearing on the £6000 interest I believe she can earn without tax.    

On those specific figures it doesn't but if (when) her pension tips over her Personal Allowance it will do.

At the moment she has spare Personal Allowance of £710 so the first £710 of interest will be covered by that.

And the next £4,290 will be taxed at 0% (savings starter rate band).

She won't be able to benefit from the savings nil rate band.

But say her pension income increased to £11,500.  She will pay tax on £190 of that and that limits her savings starting rate band to £4,810.

The first £4,810 of interest will be taxed at 0% (savings starter rate band) and the next £190 will also be taxed at 0% (savings nil rate band).

Uplander1111

Thanks again - what I am seeing therefore is that we haven't compromised anything by transferring the marriage allowance.  I am afraid these things are a tad confusing to me.  The interest figure quoted is on the upside and it may be that personal circumstances will change anyway and then we will not have this amount.  I just had a panic attack that by trying to save a bit of tax we may have caused problems in other areas. 

Appreciate your help.

Dazed_and_C0nfused

Uplander1111 said:

Thanks again - what I am seeing therefore is that we haven't compromised anything by transferring the marriage allowance.  I am afraid these things are a tad confusing to me.  The interest figure quoted is on the upside and it may be that personal circumstances will change anyway and then we will not have this amount.  I just had a panic attack that by trying to save a bit of tax we may have caused problems in other areas. 

Appreciate your help.

There is a little bit of headroom left so unless she gets an unexpected increase in interest or a very large pension increase she shouldn't have caused any problems.

art123_2

Being a non taxpayer my wife receives the marriage allowance from me. She is retiring at the end of this tax year, but because she will not receive her state pension until August 24, her income for 24/25 is going to be lower than normal, which we estimate to be around £10700 from state pension and company pension. 

Based on that figure she would obviously not be entitled to receive the marriage allowance for 24/25.  However, she is also planning to take a pension lump sum of £6000, of which £4500 would be taxable after deducting the 25% tax free portion, and if you factor that in then that would push her income above the personal allowance and into the tax bracket, with a total income of £15200.

I have looked on the HMRC website but can't find any information as to how this lump sum would be treated, and how it would possibly affect her entitlement to the allowance for 24/25.

Regarding savings interest for 24/25, would she be allowed to receive £18570 - £15200 = £3,370 or £18570 - £10700 = £7870 before paying tax.  

Also, if she can't get the allowance for 24/25 will I need to contact HMRC to cancel this prior to the start of the tax year, and then reapply before the start of 25/26 when her income will be back above the personal allowance again.

I'm finding this all very confusing, so any information or help in clarifying this situation would be much appreciated.

Dazed_and_C0nfused

art123_2 said:

Being a non taxpayer my wife receives the marriage allowance from me. She is retiring at the end of this tax year, but because she will not receive her state pension until August 24, her income for 24/25 is going to be lower than normal, which we estimate to be around £10700 from state pension and company pension. 

Based on that figure she would obviously not be entitled to receive the marriage allowance for 24/25.  However, she is also planning to take a pension lump sum of £6000, of which £4500 would be taxable after deducting the 25% tax free portion, and if you factor that in then that would push her income above the personal allowance and into the tax bracket, with a total income of £15200.

I have looked on the HMRC website but can't find any information as to how this lump sum would be treated, and how it would possibly affect her entitlement to the allowance for 24/25.

Regarding savings interest for 24/25, would she be allowed to receive £18570 - £15200 = £3,370 or £18570 - £10700 = £7870 before paying tax.  

Also, if she can't get the allowance for 24/25 will I need to contact HMRC to cancel this prior to the start of the tax year, and then reapply before the start of 25/26 when her income will be back above the personal allowance again.

I'm finding this all very confusing, so any information or help in clarifying this situation would be much appreciated.

I don't know why you think she wouldn't be entitled to receive Marriage Allowance?

Or why the £4,500 pension income would be any different to any other pension income?

It's being a higher rate payer that stops you being eligible, having a low income doesn't make you ineligible.

If her taxable non savings non dividend income ends up being £15,200 then she will be liable to pay tax on £2,630 of that leavings £2,370 of the savings starter rate band available for any taxable interest (the interests is taxed at 0%).

Plus the next £1,000 of taxable interest would also be taxed at 0% courtesy of the savings nil rate band.

I'm not sure what these figures are meant to represent?

or £18570 - £10700 = £7870

art123_2

Many thanks "Dazed and confused" for clearing that up for me.  It looks like I have somehow misunderstood the marriage allowance/pension rules.  The only problem with the savings interest is that it only leaves £3370 tax free, so her ISA will need to be topped up. 

Thanks again

polymaff

art123_2 said:

Based on that figure she would obviously not be entitled ...

I'm finding this all very confusing, so any information or help in clarifying this situation would be much appreciated.

Just a suggestion.  Don't assert what you think is obvious.  Challenge your assumptions.

Good for the Grey Matter.