Beware savings income losing you the Marriage allowance

helenk1234

Even though I only have a small amount of savings income (well below the amount you are allowance to get before paying tax) I have just effectively paid 37% tax on the little savings income I have because it caused me to lose the marriage allowance. My income excluding savings income went up this year to just below the 40% tax bracket amount. Adding the savings income put me just above it but because of the savings allowance I didn't pay any tax on it. I didn't actually pay 40% tax on any of my income but HMRC rules say that I because my total income is over the 40% tax threshold I can't receive the marriage allowance this year. I think this is totally unfair. I can't give it back to my husband as he didn't pay any tax so it disappears back into a black hole. Thought I had better warn other MoneySavers about this.

Dazed_and_C0nfused

helenk1234 said:

Even though I only have a small amount of savings income (well below the amount you are allowance to get before paying tax) I have just effectively paid 37% tax on the little savings income I have because it caused me to lose the marriage allowance. My income excluding savings income went up this year to just below the 40% tax bracket amount. Adding the savings income put me just above it but because of the savings allowance I didn't pay any tax on it. I didn't actually pay 40% tax on any of my income but HMRC rules say that I because my total income is over the 40% tax threshold I can't receive the marriage allowance this year. I think this is totally unfair. I can't give it back to my husband as he didn't pay any tax so it disappears back into a black hole. Thought I had better warn other MoneySavers about this.

Are you certain about all of that?

It's not what the legislation states.

Or do dividends form part of your taxable income?

This is what the legislation states,

Tax reduction: entitlement

(1)An individual is entitled to a tax reduction for a tax year of the appropriate percentage of the transferable amount if the conditions in subsection (2) are met.

(2)The conditions are that—

[F2(a)the individual is the gaining party (see section 55C(1)(a)) in the case of an election under section 55C which is in force for the tax year,]

(b)the individual is not, for the tax year, liable to tax at a rate other than the basic rate, [F3 the default basic rate, the savings basic rate,] [F4the dividend nil rate,] [F5the Scottish basic rate,] [F6a Scottish rate below the Scottish basic rate, the Scottish intermediate rate,] [F7the Welsh basic rate,] the dividend ordinary rate [F8, the savings nil rate] or the starting rate for savings,

[F9(ba)if for the tax year the individual is liable to tax at the dividend nil rate, the individual would for that year neither be liable to tax at the dividend upper rate, nor be liable to tax at the dividend additional rate, if section 13A (dividend nil rate) were omitted,]

(c)the individual meets the requirements of section 56 (residence) for the tax year, and

(d)neither the individual nor the [F10relinquishing] spouse or civil partner makes a claim for the tax year under section 45 (married couple's allowance: marriages before 5 December 2005) or section 46 (married couple's allowance: marriages and civil partnerships on or after 5 December 2005).

sheramber

Put some of the savings into your husbands name  or in in ISA

helenk1234

Thank you both for your comments. Most of our savings are in my husbands name - I just have a small amount in my name so I have something to fall back on whilst sorting out his estate if he dies.

This is what the inland revenue said "On reviewing the 2023-34 tax calculation there is an amount of Bank and Building Society Interest of £453, also an amount of Dividends of £173, therefore an amount of £626 of your income falls within the Higher Rate tax band. The 0% rate has been correctly applied. The 0% rate is not an exemption to tax, it replaces the rate that would otherwise be charged"

Looking at the legislation above it is a bit confusing "(b)the individual is not, for the tax year, liable to tax at a rate other than the basic rate, [F3 the default basic rate, the savings basic rate,] [F4the dividend nil rate,] [F5the Scottish basic rate,] [F6a Scottish rate below the Scottish basic rate, the Scottish intermediate rate,] [F7the Welsh basic rate,] the dividend ordinary rate [F8, the savings nil rate] or the starting rate for savings, but I do think it means that as long as I only pay tax on the rates shown I should receive the Marriage Allowance.

I have decided to ask for a second opinion on my complaint. Don't suppose I will get anywhere but worth a try.

Dazed_and_C0nfused

helenk1234 said:

Thank you both for your comments. Most of our savings are in my husbands name - I just have a small amount in my name so I have something to fall back on whilst sorting out his estate if he dies.

This is what the inland revenue said "On reviewing the 2023-34 tax calculation there is an amount of Bank and Building Society Interest of £453, also an amount of Dividends of £173, therefore an amount of £626 of your income falls within the Higher Rate tax band. The 0% rate has been correctly applied. The 0% rate is not an exemption to tax, it replaces the rate that would otherwise be charged"

Looking at the legislation above it is a bit confusing "(b)the individual is not, for the tax year, liable to tax at a rate other than the basic rate, [F3 the default basic rate, the savings basic rate,] [F4the dividend nil rate,] [F5the Scottish basic rate,] [F6a Scottish rate below the Scottish basic rate, the Scottish intermediate rate,] [F7the Welsh basic rate,] the dividend ordinary rate [F8, the savings nil rate] or the starting rate for savings, but I do think it means that as long as I only pay tax on the rates shown I should receive the Marriage Allowance.

I have decided to ask for a second opinion on my complaint. Don't suppose I will get anywhere but worth a try.

You didn't mention the dividend income in your original post and it seems to me that you fall foul of the second clause,

[F9(ba)if for the tax year the individual is liable to tax at the dividend nil rate, the individual would for that year neither be liable to tax at the dividend upper rate, nor be liable to tax at the dividend additional rate, if section 13A (dividend nil rate) were omitted,]

Complaining to HMRC is a waste of time, it's your MP you should be contacting if you want the legislation changing.

helenk1234

I don't think that interpretation can correct. I have always had a small amount of dividend income and this has never stopped me getting the marriage allowance - I think if it were the case that anyone who had a small amount of dividend income were stopped from receiving Marriage Allowance it would apply to a large number of people as many still hold shares from either work schemes or privatisations.

molerat

But it won't apply to everyone who receives dividends.  The important bit is the very last bit

if section 13A (dividend nil rate) were omitted,]

If there was not a dividend nil rate then you would be subject to tax at a higher rate which therefore excludes you from marriage allowance.

Dazed_and_C0nfused

helenk1234 said:

I don't think that interpretation can correct. I have always had a small amount of dividend income and this has never stopped me getting the marriage allowance - I think if it were the case that anyone who had a small amount of dividend income were stopped from receiving Marriage Allowance it would apply to a large number of people as many still hold shares from either work schemes or privatisations.

I think you are missing the (slightly convoluted) point of the legislation.

It only impacts those people who would be liable to higher rate tax on their dividend income if it weren't for the dividend nil rate band (aka Dividend Allowance).

helenk1234

It isn't the dividend income clause that has meant I couldn't claim the Marriage Allowance. It is more far reaching than that.

I have had the final answer from the Tax people. What they say is "The Personal Savings Allowance and the Dividend Allowance are not used in the same way as Personal Allowances. They do not reduce your total income and are not exempt to the rate bands".

Basically if they tip your total income into the 40% tax band then even though you do not pay 40% tax you are treated as though you have. I think this is important for people to know as I suspect that it doesn't just apply to Marriage Allowance but also to Child Benefit as well as that stops as soon as one earner becomes a 40% tax payer.

Dazed_and_C0nfused

helenk1234 said:

It isn't the dividend income clause that has meant I couldn't claim the Marriage Allowance. It is more far reaching than that.

I have had the final answer from the Tax people. What they say is "The Personal Savings Allowance and the Dividend Allowance are not used in the same way as Personal Allowances. They do not reduce your total income and are not exempt to the rate bands".

Basically if they tip your total income into the 40% tax band then even though you do not pay 40% tax you are treated as though you have. I think this is important for people to know as I suspect that it doesn't just apply to Marriage Allowance but also to Child Benefit as well as that stops as soon as one earner becomes a 40% tax payer.

That isn't what the legislation states though.

It is only the dividend nil rate band (dividend allowance) that creates this problem, income falling into the savings nil rate band (PSA) doesn't have the same impact.