Transferring Income Tax allowance

tigerspill

Hi,
I am not sure if I am posting in the right place, but this is one of the forums I regularly use and know there are some very knowledgable people who may be able to help me with a Self Assessment question.

I am a normal basic rate tax payer with some pension income and savings interest.  The savings interest is paid gross so I now have a tax bill.

My wife has no regular income.  However, she took £10,000 of taxable income from her SIPP.  She also earned around £4,700 in interest from savings accounts.  I have just added these details to her Self Assessment for 2023/24 and owes no tax (as expected).

I am not fully sure how the interaction of the tax allowances on savings interest works.  Maybe someone can help explain this in this scenario?

But my main question is it worth transferring the 10% of her tax free allowance (£1,260 I believe) to me?  With the numbers above, would she still pay no tax?  It seems it would save me £252 in income tax with the additional allowance.

I hope this makes sense

eskbanker

Yes, she still has plenty of headroom to avoid tax even if transferring the marriage allowance to you - she could earn a total of £18,570 on that income mix without doing that or £17,310 if transferring.

tigerspill

eskbanker said:

Yes, she still has plenty of headroom to avoid tax even if transferring the marriage allowance to you - she could earn a total of £18,570 on that income mix without doing that or £17,310 if transferring.

Thank you!
I now just need to work out how to do this.

eskbanker

tigerspill said:

eskbanker said:

Yes, she still has plenty of headroom to avoid tax even if transferring the marriage allowance to you - she could earn a total of £18,570 on that income mix without doing that or £17,310 if transferring.

Thank you!
I now just need to work out how to do this.

https://www.gov.uk/marriage-allowance/how-to-apply

ColdIron

You might consider moving some of your savings to your wife to use up her headroom this year even if she repeats the £10,000 pension withdrawal, a lot more if she doesn't

Do you use your ISA allowance? Could you increase your pension contributions?

tigerspill

ColdIron said:

You might consider moving some of your savings to your wife to use up her headroom this year even if she repeats the £10,000 pension withdrawal, a lot more if she doesn't

Do you use your ISA allowance? Could you increase your pension contributions?

Yes - I need to transfer some savings across as she will be in this situation for another two years when she will collect her pension.  We do use our ISA allowances already.  We are limited on SIPPs to £2,880 each - which we do.

I believe that this transfer arrangement can be backdated to 2020 - did I get this right?

ColdIron

I'm not married so never tried but HMRC say you can, go back a page on the link above

• Backdating your claim

• You can backdate your claim to include any tax year since 5 April 2020 that you were eligible for Marriage Allowance.
• Your partner’s tax bill will be reduced depending on the Personal Allowance rate for the years you’re backdating.

p00hsticks

tigerspill said:

eskbanker said:

Yes, she still has plenty of headroom to avoid tax even if transferring the marriage allowance to you - she could earn a total of £18,570 on that income mix without doing that or £17,310 if transferring.

Thank you!
I now just need to work out how to do this.

Being pedantic - it's your wife who needs to work out how to do this as she has to apply to transfer some of her allowance to you, you can't unilaterally demand to take some of hers. 

tigerspill

p00hsticks said:

tigerspill said:

eskbanker said:

Yes, she still has plenty of headroom to avoid tax even if transferring the marriage allowance to you - she could earn a total of £18,570 on that income mix without doing that or £17,310 if transferring.

Thank you!
I now just need to work out how to do this.

Being pedantic - it's your wife who needs to work out how to do this as she has to apply to transfer some of her allowance to you, you can't unilaterally demand to take some of hers. 

It's a fair point even from a logistical PoV as it is actually my wife needs to do this (in this instance).
Looking again, it looks like I can backdate two tax years where she had no earnings - so thats over £500.  Plus £250 in 23/24.  And likely another two tax years so another £500.  All in all, £1,250 value.  
Free money as far as i can see.  And process seems really simple.

I also do my father's taxes and it looks like he is in the same boat - but can go back 4 tax years.

Dazed_and_C0nfused

tigerspill said:

eskbanker said:

Yes, she still has plenty of headroom to avoid tax even if transferring the marriage allowance to you - she could earn a total of £18,570 on that income mix without doing that or £17,310 if transferring.

Thank you!
I now just need to work out how to do this.

You don't do it, your wife has to.

You cannot claim Marriage Allowance (divorce courts would no doubt be overflowing!!), your wife will have to apply for you to receive the £252 credit.

Dazed_and_C0nfused

tigerspill said:

p00hsticks said:

tigerspill said:

eskbanker said:

Yes, she still has plenty of headroom to avoid tax even if transferring the marriage allowance to you - she could earn a total of £18,570 on that income mix without doing that or £17,310 if transferring.

Thank you!
I now just need to work out how to do this.

Being pedantic - it's your wife who needs to work out how to do this as she has to apply to transfer some of her allowance to you, you can't unilaterally demand to take some of hers. 

It's a fair point even from a logistical PoV as it is actually my wife needs to do this (in this instance).
Looking again, it looks like I can backdate two tax years where she had no earnings - so thats over £500.  Plus £250 in 23/24.  And likely another two tax years so another £500.  All in all, £1,250 value.  
Free money as far as i can see.  And process seems really simple.

I also do my father's taxes and it looks like he is in the same boat - but can go back 4 tax years.

How old is your father?

If he is old enough he may be claiming Married Couple's Allowance and Marriage Allowance is the poor relation compared to that.

You wouldn't want to bother with Marriage Allowance if you were eligible for Married Couple's Allowance!