Marriage Allowance and Starter Rate

AlisonJane58

I have applied for marriage allowance for the first time this year, as I retired from work a few months ago and have only two very small pensions. For this current tax year my work / pension income will be around £10,000. I do however have savings interest in excess of £1000 and have benefitted from the "starter rate" in previous years. My husband is a basic rate tax payer.

I have received a tax coding notice from the HMRC and queried this over the telephone. They seem to intend to reduce my "starter rate for savings interest" by £1260 and not my personal allowance. Is this correct? I can't seem to make them understand on the phone

eskbanker

It's surely not going to matter, if your earned income is circa £10K, unless your savings interest is in £7K+ territory?

molerat

They have not reduced your starter rate.

The most likely scenario is that they have reduced your allowance by £1260 for the marriage allowance transfer. That leaves you with £11310. Your income is estimated at £10000 which leaves £1310 spare allowance which is then allocated to your taxable, although at 0%, interest. As long as your income is less than the allowances allocated then no tax will be paid. You cannot use your starter rate until you have used up your tax free allowance. This is something that regularly comes up on here, if HMRC didn't do it they would save themselves an awful lot of telephone time !

So what code(s) have been allocated and are they sufficient to cover the incomes from those sources ? If you increase those estimated incomes then that savings deduction will be removed / reduced.

skylincs12

Hi,
Big fan for many years. My last year HMRC wanted tax on some savings interest that I thought I had covered by the Starting savings rate and the usual £1000  savings allowance. With a state pension and a small private pension, much diminished by Equitable Life scandal, I was lucky to inherit a significant sum enriched by careful stockmarket management, but with a substantial in cash in volatile times. It was in my interest in the past to use the married person allowance to save a little tax by passing it to my wife. Fiscal drag meant that in recent years saved nothing but cost nothing for the two of us. However 24-25 saw HMRC taxing me effectively on interest on savings because of the way they calculate the position of the starting savings rate. I complained showing my working that had I not donated my married person allowance I would not be liable for tax on my savings......and HMRC has agreed, quoshing the tax on savings and  sending me an income tax  rebate and corresponding liability to my wife. I can send the details if required but I think in times of inherited wealth from houses there may well be others caught in this trap. I do not think nearly enough attention is drawn to the Starting savings rate, I myself thought for some time that the Personal savings allowance had replaced it but with the married person allowance things are even more complicated.

eskbanker

I think in times of inherited wealth from houses there may well be others caught in this trap.

Has something changed recently?

Dazed_and_C0nfused

Strictly Marriage Allowance doesn't have any impact on the savings starter rate band, it is still a maximum of £5,000.

But if someone has applied for Marriage Allowance then they have a reduced Personal Allowance of £11,310 so they could start using the savings starter rate band slightly earlier than if they had a Personal Allowance of £12,570.

This comment also suggests HMRC have simply cancelled Marriage Allowance, which may be special treatment because you have complained that's all, not a change because anything was incorrect.

quoshing the tax on savings and sending me an income tax rebate and corresponding liability to my wife

skylincs12

No special treatment for me. HMRC took personal allowance from pensions and ADDED marriage transfer and then subtracted that from 5000. eg 14000 - 12570 =1430 + 1260 = 2690 and then 5000 - 2690 = 2310. tax free

Compare no marriage transfer 14000 - 12570 = 1430 then 5000 - 1430 = 3570 tax free

The figures appeared in fixed format on a Simple Assessment that I received

As stated no overall effect on income tax simply taxing my wife and refunding me after reversal of marriage transfer

ljayljay

Yes, you do need to be careful to ensure that transferring the marriage allowance doesn't on occasions actually make you worse off.

Myself & wife have been caught out by the transfer of marriage allowance & starter rate calculation. Wrote to HMRC about a year ago & still not sorted.

From 23/24, for the first time, my wife's pension exceeded the persoal allowance of £12,570. Basically I tried to transfer her allowance back from 23/24 but did it too late so our codes remained the same until 24/25. Normally this wouldn't have made much difference as her loss would have been my gain. However, due to her savings interest she ended up paying an additional £250 tax as well as the additional tax due to the marriage allowance deduction. Since this can't be amended online we have requested that the allowance is reverted back to her from 23/24. From my calculation this will mean that although I will be billed for around £250 she will be entitled to a refund of around £500.

ChupaChups2

Your page on Marriage Tax Allowance with the following link Marriage Tax Allowance: How does it work and how to apply – MoneySavingExpert contains the following example:

"Part-time Peter works just enough and earns £5,000 at his local fish and chip shop. His full personal allowance for the year is £12,570, so he has plenty of spare allowance to transfer £1,260 to his wife.

Peter's wife, full-time Fiona, is a software developer. She earns £35,000 and is a basic-rate taxpayer (higher-rate tax starts at £50,270 for most). Her personal allowance effectively increases by £1,260 to £13,830 when Peter chooses to make his transfer.

So she has an extra £1,260 which she would've paid tax on at 20%, but is now tax-free, so she's £252 up (20% of £1,260)."

But is the sentence which I have bolded actually correct? Is it not the case that Peter's wife's personal allowance remains £12,570 (not £13,830) but she also receives an equivalent tax credit of £252.00 (£1,260 @ 20 %)?

Specifically, If the recipient/transferee of the Marriage Tax Allowance is entitled to Savings Starting Rate, but whose salary or pension is between £12,570 and £17,570, is the Savings Starting rate reduced by the excess of salary/pension over £12,570, or by the difference between the salary/pension and £13,830?

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81892691#Comment_81892691

You are correct.

No one can have a Personal Allowance greater than £12,570.

The recipient of Marriage Allowance gets a tax reducer, worth £252. If they only have a tax liability of say £200 then that is reduced to £0 and the other £52 is unused/lost.

If someone receiving Marriage Allowance has non savings non dividend income of £14,000 they would have already used £1,430 of their basic rate band, leaving the starter savings rate band as just £3,570. Not £4,830.

Oldwygg

https://forums.moneysavingexpert.com/discussion/comment/81889801#Comment_81889801

Myself and my wife had the same problem. In the end the receiver of the MPA ( in our case, my wife) elected to cancel the previous MPA transfer for the previous 2 tax years. This meant our combined self assessment liabilities fell by £252 in each of those tax years. We had to go through an appeal process though to achieve this.