Change married allowance?

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  • polymaff
    polymaff Posts: 3,903
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    kidmugsy wrote: »
    Why not give us a link to your source?

    http://www.legislation.gov.uk/ukpga/2014/26/section/11
  • polymaff

    HMRC seem to have ignored case 1 - don't you ignore case 2

    Fair point! Will remember in the future.
  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458
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    edited 9 February 2018 at 6:45PM
    vigman

    Also please could you clarify: "One thing to consider is that you aren't entitled to any extra allowance. Your wife applying entitles you to a reduction in your tax liability, not any extra allowances. It may not affect you but it can have devastating (financial) consequences if you get this wrong.


    One in particular which can be costly is if you have a deferred State Pension and opt for the lump sum. Using your logic (allowances of £13035) lets think about someone who had total income of £13,035 (having carefully avoided exceeding what they thought was their tax free allowance) and a State Pension lump sum of £25,000.

    As they aren't liable to any tax then no tax would be payable on the State Pension lump sum either.

    But in actual fact they are liable to tax on any normal income above their Personal Allowance of £11,850. So we have £13,035 less £11,850 = £1,185 taxable at 20% = £237. As the beneficiary of Marriage Allowance they can deduct £238 from their tax bill so no tax is payable.

    But they are a basic rate payer and therefore the State Pension lump sum is taxable at basic rate so £5,000 tax is payable on the £25,000 lump sum :eek:

    polymaff has provided a link to the legislation which states,

    55BTax 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—
    (a)the individual is married to, or in a civil partnership with, a person who makes an election under section 55C for the purposes of this section which is in force for the tax year (“the individual's spouse or civil partner”),
    (b)the individual is not, for the tax year, liable to tax at a rate other than the basic rate, the dividend ordinary rate or the starting rate for savings,
    (c)the individual meets the requirements of section 56 (residence) for the tax year, and
    (d)neither the individual nor the individual's 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).
    (3)“The appropriate percentage” is the basic rate at which the individual would be charged to income tax for the tax year to which the reduction relates.
  • polymaff
    polymaff Posts: 3,903
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    polymaff has provided a link to the legislation which states,

    I can't take credit! The key point that your excellent example illustrates is that the party who elects for an MAT may find that their "Marginal Rate" of taxation for the year rises - with devastating results for some lump-sum recipients.

    There's many a slip to MAT - exacerbated by HMRC's lack of comprehension of the legislation, inevitably resulting in nonsensical advice - then made worse by the media employing "experts" who do nothing but unthinkingly parrot that nonsensical advice.
  • vigman
    vigman Posts: 1,377
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    edited 11 February 2018 at 1:22PM
    Thanks everyone for the detailed replies.

    I didn't even know about deferred state pensions and lump sums and it is only because of this excellent forum that I have managed to increase my weekly state pension which starts in August by paying an additional year of NI contributions

    In our case we won't actually know my wife's earnings of 18/19 until April 2019. I see that as she will most likely have some rental income over £2500 she will have to fill in a self assessment by 31st Jan 2020

    If I keep the marriage allowance then after she has filled in the SA I imagine HMRC will advise on which codes we should have used?

    Am I right in thinking it shouldn't make any difference to the total tax we pay if we have the MA applied or both have the standard allowance whether my wife's income is above or below her tax allowance and I am on £24k income?

    Out of interest when we were both self employed in the 1980s we used to submit audited accounts to the tax office and never filled in self assessment forms as wel. Has this changed ?

    TIA

    Vigman
    Any information given in my posts or replies is intended to be of interest and/or help to members of the forum. I cannot guarantee that this is accurate or up to date.
  • sheramber
    sheramber Posts: 18,864
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    First year for self ssessment was 1996/97
  • vigman
    vigman Posts: 1,377
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    Okay.....OP here.

    I now know that from April 2018, I will have a gross income of £24,000 and my wife will have rental income of £1050 per month, £12,600 pa

    Should I leave the marriage allowance in place as our total tax bill will be the same or get my wife to ask for the allowance to be removed from me for the new tax year so that we are both on standard codes?

    (Am I right in understanding that if I request it removed the change will be backdated to when it first started and I will owe the tax refund gained back?)

    TIA

    Vigman
    Any information given in my posts or replies is intended to be of interest and/or help to members of the forum. I cannot guarantee that this is accurate or up to date.
  • polymaff
    polymaff Posts: 3,903
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    vigman wrote: »
    I now know that from April 2018, I will have a gross income of £24,000 and my wife will have rental income of £1050 per month, £12,600 pa

    Should I leave the marriage allowance in place as our total tax bill will be the same or get my wife to ask for the allowance to be removed from me for the new tax year so that we are both on standard codes?

    (Am I right in understanding that if I request it removed the change will be backdated to when it first started and I will owe the tax refund gained back?)

    It's really up to you. There are some trip-ups - but for the majority MAT is a benign process.

    You're right in your understanding of HMRC's stance - although the legislation specifically forbids HMRC from accepting such a request.

    Classic HMRC.
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