Marriage Allowance & Child Benefit

chrishgt4

I don't know if this is a benefits or a tax post because it straddles each, but I thought this was the best place for it as it is regarding the technicalities of the Marriage Allowance.

My wife and I claim child benefit, but this year my earnings will take me far enough over taxable earnings of 50,099 that I will need to pay a couple of hundred in Child Benefits back. The bump comes from an unpredictable end-of-year bonus in my Feb pay. Last year I dealt with this by making the appropriate calculations after I received the bonus and making a one-off increase to my pension contributions in March to bring me back under the threshold.

This year, I would need to contribute more than £700 extra which I can't really do.

This got me thinking that possibly I could have my wife share £700 of her allowance with me to bring my taxable earnings under the threshold. Rough calculations mean it would cost her an extra £150 in tax but would save us over £200 in child benefit (she is plenty shy of the £50,099 Child Benefit limit).

Everything I've seen about the marriage allowance talks about sharing unused personal allowance, but only in relation to how it will benefit the couple, rather than in relation to the rules surrounding it.

Does anyone know if this can be done?

molerat

Your wife cannot share her allowance with you if you are a higher rate tax payer, the marriage allowance cannot be used to take you out of being a higher rate tax payer.  MA is a set £1260 from her allowance, it cannot be varied, and the recipient simply gets £252 taken off their tax.

The_Unready

https://www.gov.uk/marriage-allowance

Is your wife's income below the personal allowance?

r6mile

That's not how it works - does your wife earn below the personal allowance? In which case making extra pension to drop your ANI below £50,100 means you will:
- get £252 in Marriage Allowance
- not have to pay back child benefit
- get 40% tax relief on most of your contributions

Appreciate if you don't have the cash this may not be possible, but just to flag you will be significantly better off - especially once you add marriage allowance into the mix. 

p00hsticks

r6mile said:

That's not how it works - does your wife earn below the personal allowance? In which case making extra pension to drop your ANI below £50,100 means you will:
- get £252 in Marriage Allowance
- not have to pay back child benefit
- get 40% tax relief on most of your contributions

Appreciate if you don't have the cash this may not be possible, but just to flag you will be significantly better off - especially once you add marriage allowance into the mix. 

As molerat has pointed out though, Marriage Allowance is not available to higher rate tax payers.

molerat

p00hsticks said:

r6mile said:

That's not how it works - does your wife earn below the personal allowance? In which case making extra pension to drop your ANI below £50,100 means you will:
- get £252 in Marriage Allowance
- not have to pay back child benefit
- get 40% tax relief on most of your contributions

Appreciate if you don't have the cash this may not be possible, but just to flag you will be significantly better off - especially once you add marriage allowance into the mix. 

As molerat has pointed out though, Marriage Allowance is not available to higher rate tax payers.

To be fair they are advocating making additional pension payments to take OP out of higher tax which could actually have a £0 effect in overall income, taking into account the reduction in income tax, £252 from MA and not having to pay back CB, with the added bonus of an increased amount in the pension.

r6mile

Exactly - the extra pension contributions will stop him becoming a HR taxpayer, and therefore eligible for MA. I am in exactly the same situation so familiar with how it works!

sheramber

r6mile said:

That's not how it works - does your wife earn below the personal allowance? In which case making extra pension to drop your ANI below £50,100 means you will:
- get £252 in Marriage Allowance
- not have to pay back child benefit
- get 40% tax relief on most of your contributions

Appreciate if you don't have the cash this may not be possible, but just to flag you will be significantly better off - especially once you add marriage allowance into the mix. 

But his wife will pay more tax.

OP wanted to transfer £700 of personal allowance which would mean his wife paying £150 more tax. so she must be liable to pay tax already
But you can't transfer only £700. It has to be the full 10% of the personal allowance.

So it looks like his wife's increase in tax payable would cancel out the benefit he got.

Dazed_and_C0nfused

sheramber said:

r6mile said:

That's not how it works - does your wife earn below the personal allowance? In which case making extra pension to drop your ANI below £50,100 means you will:
- get £252 in Marriage Allowance
- not have to pay back child benefit
- get 40% tax relief on most of your contributions

Appreciate if you don't have the cash this may not be possible, but just to flag you will be significantly better off - especially once you add marriage allowance into the mix. 

But his wife will pay more tax.

OP wanted to transfer £700 of personal allowance which would mean his wife paying £150 more tax. so she must be liable to pay tax already
But you can't transfer only £700. It has to be the full 10% of the personal allowance.

So it looks like his wife's increase in tax payable would cancel out the benefit he got.

I agree, the Marriage Allowance aspect appears to be completely pointless.  She would probably pay ~£254 more to save the op £252.

Pension contributions to avoid higher rate tax and HICBC are the key thing here.