Are savings counted as income for marriage allowance upper limit?

littlegreen

Hi,
Long time lurker but finally a question I cannot seem to find an answer to already.

I was planning to transfer my marriage tax allowance to my other half for this tax year. I will earn well below the tax threshold for thiis year, however other half is at top end earning £46k gross pay a year (however does salary sacrifice 6% of this to pension). He may also get a bonus circa £3k. 

My understanding is firstly salary sacrifice does not bring down your taxable earnings for marriage allowance. So if his bonus was larger, and tipped him to being a 40% taxpayer, salary sacrificing more would not help this?

Secondly is savings interest counted as income in this regards? He will earn slightly over £1k of savings interest this tax year (in hindsight this should have gone in my name and used up some of my tax allowance but alas, fixed saver is done now)

Of course I could wait until the end of the tax year to see earnings and claim retrospectively. Just would prefer the money sat in my account and not HMRCs!

Cheers

Dazed_and_C0nfused

littlegreen said:

Hi,
Long time lurker but finally a question I cannot seem to find an answer to already.

I was planning to transfer my marriage tax allowance to my other half for this tax year. I will earn well below the tax threshold for thiis year, however other half is at top end earning £46k gross pay a year (however does salary sacrifice 6% of this to pension). He may also get a bonus circa £3k. 

My understanding is firstly salary sacrifice does not bring down your taxable earnings for marriage allowance. So if his bonus was larger, and tipped him to being a 40% taxpayer, salary sacrificing more would not help this?

Secondly is savings interest counted as income in this regards? He will earn slightly over £1k of savings interest this tax year (in hindsight this should have gone in my name and used up some of my tax allowance but alas, fixed saver is done now)

Of course I could wait until the end of the tax year to see earnings and claim retrospectively. Just would prefer the money sat in my account and not HMRCs!

Cheers

You've misunderstood a few things there.

Firstly there is no upper income limit for Marriage Allowance.  To be eligible you must not be a higher rate payer.  Someone could earn £65k and not be a higher rate payer if they paid enough into their pension (or made large Gift Aid payments).

He cannot deduct salary sacrifice contributions for tax purposes as they are actually employer contributions.  But by giving up that salary in the first place to get those employer contributions his taxable income will only be £43,240. 

He then needs to add in any other taxable income and interest, if not from an ISA or within a pension, is taxable income.  Even the first £1,000 which is taxed at 0%.

He only counts the bonus if it's paid to him, if he sacrifices it into his pension he hasn't actually received a bonus, he's given it up for extra employer pension contributions.

Finally you cannot directly benefit from applying for Marriage Allowance.  Your husband will get the benefit and it will be a reduction in the tax he pays under PAYE (or a refund after the end of the tax year).  Although he may wish to give the money to you 😊

kimwp

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

The subtle but key point is that eligibility includes the recipient not being a higher rate tax payer. 

Whether someone is a higher rate tax payer depends on their "adjusted net income". For me, this is calculated by adding my salary, bonus and savings income and deducting my pension and charitable contributions. The result means my adjusted net income is below the higher rate threshold, meaning that I am taxed at the basic rate. There are other possible sources of income and probably methods of reduction that don't apply to me - If you look up how to calculate adjusted net income, this should help.

Note that taxed "at the basic rate" or "at the higher rate" does not mean that your whole income is taxed at this rate, but that the amount of (adjusted net) income exceeding the threshold is taxed at this rate.

littlegreen

Thank you both, understood it is on net income. I'd found mixed things online! Good to know savings included, something to exclude for next year my putting in my name.

And yes appreciate I should have have said "money sat in our account ". Everything goes into one joint account for us.

Will gift aid relief also help bring him back to a basic rate taxpayer? Even though it is taxed initially and then reclaimed through self assessment?

Off to get it applied for anyway for this year, just thinking ahead should he ever tip over by £100 or so

Dazed_and_C0nfused

littlegreen said:

Thank you both, understood it is on net income. I'd found mixed things online! Good to know savings included, something to exclude for next year my putting in my name.

And yes appreciate I should have have said "money sat in our account ". Everything goes into one joint account for us.

Will gift aid relief also help bring him back to a basic rate taxpayer? Even though it is taxed initially and then reclaimed through self assessment?

Off to get it applied for anyway for this year, just thinking ahead should he ever tip over by £100 or so

Yes, Gift Aid doesn't reduce his taxable income but would increase his basic rate band and can therefore help avoid being a higher rate payer.