Marriage Allowance - What constitutes 'income'?

Welcome to the wonderful world of Geroge Osborne: "under Gordon Brown the UK led the world when it came to complification of the tax system but we have found many more ways to take taxpayers into whole new areas of complexity". (Transferable allowances are available in many fiscs but not with the complexities introduced by the politicial need to deny benefit to higher rate taxpayers (those filthy stinking rich people like, eg, nurses and teachers).

Yes(ish). The condition in the legislation is actually is not "liable to tax at a rate other than the basic rate, the dividend ordinary rate or the starting rate for savings". That's a wee bit complicated so what the website asks looks to be a fair approximation. (I'd need more than a quick referesher to work out just what if any effect might come from things like gift aid.) The "why" is so as to limit the benefit to - very broadly - plain vanilla basic rate taxpayers.

Goodness only knows. Once upon a time there would have been statutory cover for accepting claims in advance, based either on previous year's figures or estimated figures. It'd be very sensible for them to do some such so in order to reflect the allowance for 2015-16 in PAYE codes for

2015-16. (Many if not most claimants won't be making self assessments.) But whether HMRC are doing and on what basis is not clear to me - albeit I have no personal interest so haven't gone looking. I have eg read that at opne time HMRC were stating that you needed income less than ?10,600 to claim.

That's misleading!

The transferable allowance is a fixed amount - I think it's 1,060 - so, if you're a standard rate taxpayer and this is transferred to you, you will pay £212 less tax. *But* the recipient has to be a standard rate taxpayer. If you pay tax at 40% or above, the allowance cannot be transferred to you.

Also, if your wife has less than £1,060 worth of unused allowance, she could end up paying some tax - and the net gain would be less. In the current Tax Year, the standard allowance is £10,600. If your wife earns (say) £10,000 from work or pensions (but not savings unless she gets more than £5,000 in interest) she will pay no tax. But if she transfers £1,060 to you, her allowance will go down to £9,540 - so she'll have to pay tax of £92 on the extra £460 - so your net saving will only £120.

Tax on savings interest is a bit complicated! The £5,000 allowance is on top of the standard £10,600 - but *only* if you don't have any ordinary income in that range. So if, for example, you have a salary of £16,000 - that takes you above the £15,600 total, so you lose your savings allowance and would have to pay tax on any interest received. That's for THIS Tax Year. As from next Tax Year, you'll be able to receive up to £1,000 in interest tax free even if your income is higher - but only £500 if you're a 40% tax payer and (I think) nothing at all if you're a

45% tax payer.

For further information, have a look at:

Yes, it's all in the 'how it works' explanations.

It does say that you can save 'up to' £212.

Not so much 'complicated' as 'plain daft' - brought in, IIRC. by George Brown to stop the better-paid (>£24k or so) from benefiting from all of the savings interest tax-free band. It's probably more trouble than it's worth.

Yes, I know (I've filled in enough tax returns!!!). Actually, most of the information on tax (from all sources) is fairly clear - apart from the two things that constantly annoy me, which are that it's rarely made clear whether they are referring to taxed income and untaxed income, and what actually IS 'income'.

Anyway, it appears that the calculator is essentially only a rough guide for your own amusement. If you and your spouse appear to qualify for the Marriage Allowance, if you submit the online application, HMRC will make the appropriate adjustments to your tax (presumably after they have received you annual tax return).

I think it gets even worse next year. Someone earning 149999 will get

500 of interest tax free (saving 200 of tax). Someone earning 150000 will get no interest tax free - so will be 199 pounds worse off. That's a 20000% tax rate. Not sure if pension contributions or gift aid can be used to avoid this for anyone right on the cusp.

The pension annual allowance withdrawal will mean that the next pound is effectively taxed at 90% assuming maximum pension contributions. And AIUI, giftaid won't get your pension annual allowance back unlike the reduction of the nil rate band for people earning just over 100000.

Of course, once you're earning over 210000 then you're back in the 45% tax bracket for each extra pound.

This all presupposes that the pension system doesn't get completely rewritten again this year (and next year, and the year after...)

A progressive tax regime appears to be outside of the comprehension of politicians, whether that be the rather well off or people on benefits.

Just a late followup....

I did the online application for the marriage allowance a couple of weeks ago (will apply to tax year 2016-17), and almost immediately my wife and I got our tax codes updated accordingly. It looks like I will be paying less tax 'as I go' throughout the year (rather than having to wait until the end of the new tax year, and get a refund after I've submitted our tax returns).