Marriage Transferable Tax Allowance – The Basics

The Government has recently announced that from April 2015 some married couples (including same and opposite sex) and civil partners will be eligible for a new Transferable Tax Allowance (TTA) for income tax:

 What We Know Thus Far

  • The TTA for married couples will enable spouses and civil partners to transfer a fixed amount of their income tax personal allowance (which by April 2015 will likely have risen to the long fabled £10,000 mark) to their spouse.
  • The option to transfer will only be available to couples where neither partner is a higher rate taxpayer.
  • For a couple choosing to use the TTA, one spouse will be able to transfer up to £1,000 of their unused personal allowance to their spouse or civil partner. It will mean that the higher earner will be able to earn up to £1,000 more before they start paying income tax.
  • The policy benefits only married couples and civil partners where one is a basic rate taxpayer (earning below £42,285 in 2015 to 2016) and the other’s income is so low as to leave up to £1,000 of their personal allowance unused.
  • We are told that the claim will be made online and entitlement will be from the 2015 to 2016 tax year. Couples will be entitled to the full benefit in their first year of marriage.
  • The measure will come in from 2015 to 2016, and couples will benefit from summer 2016. This suggests that the entitlement will be calculated retrospectively once the transferring spouse’s actual income for tax year 2015/6 is known i.e. the TTA is claimed retrospectively.
  • HM Treasury estimates over 4 million couples will benefit from the Transferable Tax Allowance, including 15,000 couples in civil partnerships. It will be of most benefit to those households on lower incomes.

 Conclusionshmrc-1

  • This measure is clearly triangulated to score points on a number of fronts on which the (largely Tory part of the) government clearly feels vulnerable:
    • A nod to social conservatives that Conservative Party values the institution of marriage
    • A nod to fiscal conservatives that the Tories are a tax cutting party of government
    • A nod to counter the impression/popular criticism that the Tory party looks after the well off at the expense of or regardless of the interests of the poor.
  • In trying to satisfy all these constituents the measure diminishes its own significance.
    • The quantum of the benefit is relatively small – even for those on modest incomes – and pails in comparison to other married related tax allowances and reliefs encountered in private client practice.
    • It’s unclear what real-world impact an additional £1,000 will have on a couple’s decision to get/stay married.
    • Limiting the measure to only basic rate income tax payers limits and jars somewhat incongruously with the notion that marriage is worthwhile per se, regardless of the income tax bracket of the spouses.
    • While it may be presented as a tax cut the measure appears to be revenue neutral and may actually cost the government money to administer.
  • That is to say nothing of the impact of the TTA on the Government’s stated aim (and the remit of the Office of Tax Simplification) of reducing the size and complexity of the UK’s tax code.

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