Should I cancel marriage allowance?

diy1950

Have been giving spouse the marriage allowance for a few years.
Now my income from state pension and small private pension is over my Personal Allowance of £11310 (12570 - 1260).
I also previously benefited from the full £5000 Starting Rate for Savings plus the Personal Savings Allowance of £1000.

Since I am over my Personal Allowance of £11310 my Starter Rate has been reduced to £4019
Does this mean I am losing more tax relief on savings than my spouse gains from the Marriage Allowance?  Should I cancel the Marriage Allowance?

Sarahspangles

Are you using all of your starter rate for savings, and personal savings allowance, and could do with the £1,260 to reduce tax on savings above that level? If so then the 20% tax you pay on interest offsets your partner’s income tax savings.

If you’re not over by much you could consider leaving things as they are given that interest rates are starting to fall, so you might not need the headroom for long.

art123_2

Question about marriage allowance.  I only have my state pension and savings interest as income, so I give my wife the marriage allowance of £1260.  For 24/25 the state pension was 11502 minus a reduced personal allowance of 11310 meaning for the first time I will have to pay income tax on £192 x 20%, or £38.40.  With personal allowances frozen until at least 27/28 my tax liability will continue to increase year by year over the next couple of tax years, so the £252 a year benefit to my wife will reduce year by year due to the increased year by year tax liability, and be totally wiped by 27/28, when my tax liability will exceed £252.   If state pension increases by, let's say 4% in 26/27 and 27/28 then as things stand the state pension would be £12949 minus £11310 in 27/28, which would be £1639 x 20%, or £327.80 due, so there would be no benefit in giving this allowance to my wife as we would lose out of at least £252 as a couple.  Can anybody confirm that I have got this right?  If so, apart from pensioners losing the winter fuel payment of £300, in 2 years time the poorest of pensioners would be losing out on a further £252 as a couple.

Dazed_and_C0nfused

art123_2 said:

Question about marriage allowance.  I only have my state pension and savings interest as income, so I give my wife the marriage allowance of £1260.  For 24/25 the state pension was 11502 minus a reduced personal allowance of 11310 meaning for the first time I will have to pay income tax on £192 x 20%, or £38.40.  With personal allowances frozen until at least 27/28 my tax liability will continue to increase year by year over the next couple of tax years, so the £252 a year benefit to my wife will reduce year by year due to the increased year by year tax liability, and be totally wiped by 27/28, when my tax liability will exceed £252.   If state pension increases by, let's say 4% in 26/27 and 27/28 then as things stand the state pension would be £12949 minus £11310 in 27/28, which would be £1639 x 20%, or £327.80 due, so there would be no benefit in giving this allowance to my wife as we would lose out of at least £252 as a couple.  Can anybody confirm that I have got this right?  If so, apart from pensioners losing the winter fuel payment of £300, in 2 years time the poorest of pensioners would be losing out on a further £252 as a couple.

How do you arrive at a loss of £252 🤔

Don't you mean you would be paying £252 when you don't really need to.  And your wife would still be saving £252.  My calculator shows that as one cancels the other out.

Or is your wife's income decreasing over time so she cannot benefit from the tax reduction?

Nomunnofun1

art123_2 said:

Question about marriage allowance.  I only have my state pension and savings interest as income, so I give my wife the marriage allowance of £1260.  For 24/25 the state pension was 11502 minus a reduced personal allowance of 11310 meaning for the first time I will have to pay income tax on £192 x 20%, or £38.40.  With personal allowances frozen until at least 27/28 my tax liability will continue to increase year by year over the next couple of tax years, so the £252 a year benefit to my wife will reduce year by year due to the increased year by year tax liability, and be totally wiped by 27/28, when my tax liability will exceed £252.   If state pension increases by, let's say 4% in 26/27 and 27/28 then as things stand the state pension would be £12949 minus £11310 in 27/28, which would be £1639 x 20%, or £327.80 due, so there would be no benefit in giving this allowance to my wife as we would lose out of at least £252 as a couple.  Can anybody confirm that I have got this right?  If so, apart from pensioners losing the winter fuel payment of £300, in 2 years time the poorest of pensioners would be losing out on a further £252 as a couple.

That’s a lot of calculations to still ignore the fact that your wife continues to pay £252 less tax as a result of receiving marriage allowance which exceeds the additional tax that you may pay. 

There may well come a time when ‘there would be no benefit in giving this allowance’ but there can never be any downside.

art123_2

Thank you for your replies to my question.   Still not 100% sure I've got this right.

No, my wife does not have reducing income. She has the full state pension and a small private pension of £3800.  Going by my calculations, yes she is still better off by £252 yearly, but as a couple we only benefit by £213.60 for 24/25, due to my £11310 reduced personal allowance, and a tax bill to me of £38.60.  Yes, it's still worth claiming at the moment, although the overall benefit of the marriage allowance to our income as a couple will reduce year by year until 27/28, with a tax bill of £327.80.  After 27/28 I can't see any benefit to for us as a couple, unless the government suddenly do a u turn and increase the personal allowance.

Dazed_and_C0nfused

art123_2 said:

Thank you for your replies to my question.   Still not 100% sure I've got this right.

No, my wife does not have reducing income. She has the full state pension and a small private pension of £3800.  Going by my calculations, yes she is still better off by £252 yearly, but as a couple we only benefit by £213.60 for 24/25, due to my £11310 reduced personal allowance, and a tax bill to me of £38.60.  Yes, it's still worth claiming at the moment, although the overall benefit of the marriage allowance to our income as a couple will reduce year by year until 27/28, with a tax bill of £327.80.  After 27/28 I can't see any benefit to for us as a couple, unless the government suddenly do a u turn and increase the personal allowance.

That is likely to be true, no benefit.

But that doesn't mean that, as a couple you are £252 worse off.

Whilst you are paying less than £252 it makes financial sense to keep it in place (as a couple).

Once you are liable to pay more than than it is worth them it is pointless and keeps life simpler if you revert to having the standard Personal Allowance.

If it's relevant don't forget to factor in any impact on your savings starter rate band.

art123_2

Thank you for your reply. 

Regarding the starter rate for savings that you mentioned, does giving the marriage allowance of £1260 to my wife have any effect on the £5000 starter rate and £1000 personal savings allowance 

Dazed_and_C0nfused

art123_2 said:

Thank you for your reply. 

Regarding the starter rate for savings that you mentioned, does giving the marriage allowance of £1260 to my wife have any effect on the £5000 starter rate and £1000 personal savings allowance 

It does for you yes.

Take 2024-25 as an example, your State Pension was £11,502 but your Personal Allowance was only £11,310.

So you have used £192 of the basic rate band meaning your savings starter rate band is only £4,808.  The £1,000 savings nil rate band will not be affected (if you have enough interest to use it).

There is no impact on your wife as Marriage Allowance is a tax reducer for the recipient, not extra Personal Allowance.

art123_2

Many Thanks