Marriage allowance and savings tax.

eskbanker

Just to check - are you making use of ISAs to shelter savings income from taxation?

bilkusg

The discussion above skirts round an important point which interestingly isn't mentioned at all in Martin's main article about marriage allowance transfer ( and maybe should be? )

When you transfer 1260 to your partner, you start paying tax at 11310, and you also start having your tax free savings allowance of £5000 reduced by £1 for every pound you earn above 11310. So if you have enough savings that the remaining allowances don't cover the interest received, you pay 40p more in tax for every pound above 11310 you earn, until the savings allowance is all gone.

On the other hand, when your partner receive the 1260 allowance, that reduces their tax liability by 252, but doesn't increase the threshold at which they start to lose the savings allowance which kicks in at 12570 as before.

The result is that if the lower tax payer earns a bit more than 11310 and has over 6K in savings, the additional tax they pay could be as much as £500, whereas the most the higher tax payer can save is £252. 

So in this ( admittedly rare ) case, the potential consequence of having marriage allowance transfer is significantly greater than in Martin's examples.

Oldwygg

bilkusg said:

The discussion above skirts round an important point which interestingly isn't mentioned at all in Martin's main article about marriage allowance transfer ( and maybe should be? )

When you transfer 1260 to your partner, you start paying tax at 11310, and you also start having your tax free savings allowance of £5000 reduced by £1 for every pound you earn above 11310. So if you have enough savings that the remaining allowances don't cover the interest received, you pay 40p more in tax for every pound above 11310 you earn, until the savings allowance is all gone.

On the other hand, when your partner receive the 1260 allowance, that reduces their tax liability by 252, but doesn't increase the threshold at which they start to lose the savings allowance which kicks in at 12570 as before.

The result is that if the lower tax payer earns a bit more than 11310 and has over 6K in savings, the additional tax they pay could be as much as £500, whereas the most the higher tax payer can save is £252. 

So in this ( admittedly rare ) case, the potential consequence of having marriage allowance transfer is significantly greater than in Martin's examples.

Just noticed this comment here and it’s a situation that affected myself and my wife.

The HMRC self assessment not only passes over the MA to the spouse it also reduces the starting rate allowance of the MA donor by the same amount. This resulted in my and my wife’s combined tax liability being £1260*20%=£252.00 higher than if no MA election transfer had been made in the first place. (I think there is a fundamental error in HMRCs self assessment calculation.)

We appealed our assessments on 2 arguments
1) the fundamental calculation error
2) the fact that we were not allowed to cancel our MA election when we phoned up to try.

I never heard back on the first point, but HMRC did cancel our MA election for 2023/24 and 2024/25. This resulted in our new combined tax liability for 2023/24 being reduced back to where it should have been, I.e £252 lower.

Please note it has to be the receiver of the allowance that cancels the MA transfer arrangement.

molerat

Oldwygg said:
Please note it has to be the receiver of the allowance that cancels the MA transfer arrangement.

Incorrect, it is the giver of the allowance, the applicant, that needs to cancel in most circumstances.

https://www.gov.uk/marriage-allowance/if-your-circumstances-change

How to cancel

Either of you can cancel if your relationship has ended.

If you’re cancelling for another reason, the person who made the claim must cancel.

Oldwygg

molerat said:

Oldwygg said:
Please note it has to be the receiver of the allowance that cancels the MA transfer arrangement.

Incorrect, it is the giver of the allowance, the applicant, that needs to cancel in most circumstances.

How to cancel

Either of you can cancel if your relationship has ended.

If you’re cancelling for another reason, the person who made the claim must cancel.

In our circumstances as the allowance had already been allocated for 2023/24 and 2024/25, then HMRC insisted that the receiver needed to cancel the arrangement. I agree that for future years the person that made the claim must cancel.

i am just trying to point out how we managed to get round a particularly messy situation with HMRC.