Interest & Marriage Allowance

susanann_2

Apologies for asking this again I have read through all the posts but still can’t get a clarification to this. 

If you have transferred Marriage Allowance to your husband I think I am correct in saying this does not increase the personal allowance of 12570 for interest purpose calculations only for earnings. 

What happens to the wife who has transferred it. Does she still have her personal allowance of 12570 for interest purpose calculations or does it get reduced to 11310.  I have read in couple places it’s reduced to 11310 before you calculate the interest. Surely what I have read cant be correct surely if the husband can’t increase his personal allowance for interest calculations the wife should not have to reduce hers. 

Thanks 
 

Frequentlyhere

So, not an expert but I'm working this through as I understand it.

For the Marriage allowance to be useful, the key point is that one partner has to be paying basic rate tax.

If you're talking about a situation where all of the income involved is only from savings interest and not work earnings, then in order to be paying basic rate tax you'd have to fill up the personal allowance (£12.5k) , starting rate for savings (£5k) and personal savings allowance (£1k).

Someone having over £18.5k of pure interest income would be quite a niche category, but I don't see why in theory if the other person is a non-tax payer in that situation that the marriage allowance wouldn't apply.

Is this the situation you're in?   Apologies if I've misunderstood what you're after.

edit: One thing I am sure of is that for the person who gives away their bit of allowance, the amount they can have coming in is indeed reduced to about 11310. But don't forget that the starting rate for savings and personal savings allowance would still apply, so in effect your savings income could still be about £17300 tax free.

susanann_2

Sorry I don’t think I’ve explained it well. Are the calculations just for interest purposes as follows.
Husband:  12570 + 5000(starting rate) + 1000 (Personal savings allowance) = 18570. 

OR 12570 +1260 ( MarriageAllowance) + 5000(Starting rate)+ 1000 (Personal Savings Allowance) = 19830 

Wife:  12570 + 5000 (starting rate) + 1000 (Personal savings allowance) = 18570
OR.  12570 less 1260 (Marriage Allowance) + 5000 (Starting Rate) + 1000 (Personal Savings Allowance) = 17310

This is just for interest calculation. My husband has a pension just over the Personal Allowance so I understand how to calculate the adjustment to the starting rate just not how the Marriage Allowance affects things. 

its all lovely having higher rates but it comes with its income tax problems. 

Frequentlyhere

If your husband has a pension income over the personal allowance, then he is a basic rate taxpayer.

If therefore you as a non tax payer decide to use the marriage allowance than your allowance as I understand it would in essence be your second variant

"OR.  12570 less 1260 (Marriage Allowance) + 5000 (Starting Rate) + 1000 (Personal Savings Allowance) = 17310"

HOWEVER, and what I now think the nub of your issue is, that marriage allowance is capped by the amount of tax your husband actually pays. So if he is only marginally above the basic rate tax threshold, he will not be able to receive the full 1260. Which does seem fair enough otherwise he'd be paying negative tax.

You can see this in action by playing with this official calculator.

Unfortunately that simplistic calculator doesn't include savings interest. But I think (think!) that the basic point is that if for instance your husband is paying only £60 in income tax, then the maximum amount of allowance he could be allocated is £300 (as that would equate to £60 tax at 20%).

So in that scenario, your tax allowance would be:

12570 less 300 (Partial Marriage Allowance) + 5000 (Starting Rate) + 1000 (Personal Savings Allowance) = 18270

Again, in case it isn't obvious, this is me very much 'having a go'. If someone wants to wade in with some expertise or perhaps just clarification then they're very welcome.

Dazed_and_C0nfused

susanann_2 said:

Sorry I don’t think I’ve explained it well. Are the calculations just for interest purposes as follows.
Husband:  12570 + 5000(starting rate) + 1000 (Personal savings allowance) = 18570. 

OR 12570 +1260 ( MarriageAllowance) + 5000(Starting rate)+ 1000 (Personal Savings Allowance) = 19830 

Wife:  12570 + 5000 (starting rate) + 1000 (Personal savings allowance) = 18570
OR.  12570 less 1260 (Marriage Allowance) + 5000 (Starting Rate) + 1000 (Personal Savings Allowance) = 17310

This is just for interest calculation. My husband has a pension just over the Personal Allowance so I understand how to calculate the adjustment to the starting rate just not how the Marriage Allowance affects things. 

its all lovely having higher rates but it comes with its income tax problems. 

The Marriage Allowance doesn't help the recipient at all in the way your thinking.

They get a Personal Allowance of £12,570 plus any available savings starter rate band and savings nil rate band (aka PSA).

Once the tax due has been calculated a credit of £252 is knocked off any tax owed, that is how the recipient benefits from Marriage Allowance.

The applicant does have a reduced Personal Allowance of £11,310.

Dazed_and_C0nfused

Frequentlyhere said:

If your husband has a pension income over the personal allowance, then he is a basic rate taxpayer.

If therefore you as a non tax payer decide to use the marriage allowance than your allowance as I understand it would in essence be your second variant

"OR.  12570 less 1260 (Marriage Allowance) + 5000 (Starting Rate) + 1000 (Personal Savings Allowance) = 17310"

HOWEVER, and what I now think the nub of your issue is, that marriage allowance is capped by the amount of tax your husband actually pays. So if he is only marginally above the basic rate tax threshold, he will not be able to receive the full 1260. Which does seem fair enough otherwise he'd be paying negative tax.

You can see this in action by playing with this official calculator.

Unfortunately that simplistic calculator doesn't include savings interest. But I think (think!) that the basic point is that if for instance your husband is paying only £60 in income tax, then the maximum amount of allowance he could be allocated is £300 (as that would equate to £60 tax at 20%).

So in that scenario, your tax allowance would be:

12570 less 300 (Partial Marriage Allowance) + 5000 (Starting Rate) + 1000 (Personal Savings Allowance) = 18270

Again, in case it isn't obvious, this is me very much 'having a go'. If someone wants to wade in with some expertise or perhaps just clarification then they're very welcome.

You've invented something that doesn't exist there.

Marriage Allowance is all or nothing.

The applicant gets a reduced Personal Allowance and the recipient gets a tax reduction of £252.

If they cannot use the full £252 then anything unused is lost.

Frequentlyhere

Ha ok, fair enough. So the benefit is still capped at the tax the higher earner owes, but the personal allowance of the lower earner is still lowered in full (which I had wrong). Thanks for the clarification.

susanann_2

Thanks everyone I think I’ve finally got it now. Recipient of the marriage allowance gets £252 off their tax bill as a basic rate taxpayer. My personal allowance after giving the marriage allowance to my husband has a personal allowance of 11310 + 5000 + 1000 in that order. 

Dazed_and_C0nfused

Frequentlyhere said:

Ha ok, fair enough. So the benefit is still capped at the tax the higher earner owes, but the personal allowance of the lower earner is still lowered in full (which I had wrong). Thanks for the clarification.

There's a few odd situations with Marriage Allowance!

Applicant can make themselves become taxpayers as doing that might still be better financially for the couple overall.

For example someone getting taxable pension income of say £11,800 could apply and instead of having zero tax liability they would have to pay £98.

But the recipient could be saving £252 so overall they are £154 better off.

Dazed_and_C0nfused

susanann_2 said:

Thanks everyone I think I’ve finally got it now. Recipient of the marriage allowance gets £252 off their tax bill as a basic rate taxpayer. My personal allowance after giving the marriage allowance to my husband has a personal allowance of 11310 + 5000 + 1000 in that order. 

Not quite.

If you have applied for Marriage Allowance then the only allowance you will have is the reduced Personal Allowance of £11,310.

Any income above that will be taxed.

But the first £7,000 can potentially all be taxed at various 0% tax rates

£5,000 from the savings starter rate
£1,000 from the savings nil rate
£1,000 from the dividend nil rate

For the majority of people it makes no difference but in some more unusual situations having that income taxed at 0% can add a significant amount to your overall tax liability.

Anyone taking a State Pension deferal lump sum would be deemed a basic rate payer and have to pay 20% tax on their entire lump sum despite not actually paying any tax on their other taxable income.

Doctor_Who

Dazed_and_C0nfused said:

susanann_2 said:

Thanks everyone I think I’ve finally got it now. Recipient of the marriage allowance gets £252 off their tax bill as a basic rate taxpayer. My personal allowance after giving the marriage allowance to my husband has a personal allowance of 11310 + 5000 + 1000 in that order. 

Not quite.

If you have applied for Marriage Allowance then the only allowance you will have is the reduced Personal Allowance of £11,310.

Any income above that will be taxed.

But the first £7,000 can potentially all be taxed at various 0% tax rates

£5,000 from the savings starter rate
£1,000 from the savings nil rate
£1,000 from the dividend nil rate

For the majority of people it makes no difference but in some more unusual situations having that income taxed at 0% can add a significant amount to your overall tax liability.

Anyone taking a State Pension deferal lump sum would be deemed a basic rate payer and have to pay 20% tax on their entire lump sum despite not actually paying any tax on their other taxable income.

The subtle, but important difference between 'allowance' and '0% tax rate'. HMRC don't help with terms like 'Personal Savings Allowance' and 'Dividend Allowance'.