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Tax Help Married Allowance and Married Couple's Allowance

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Hi All,

Having completed levels 2 and 3, I am complementing with the self assessment, but not through a tutor. I am using the ICB book purchased directly from ICB. The exam is based on 2015/16 tqax year, so all numbers relate to that year only, not 2016/17.

I am really struggling on marriage alllowances. 

The text book does not seem to differentiate between Married Allowance and married Couple's Allowance. Is this my lack of understanding, or is the maanual less clear than it should be?

The manual states "The married couple's allowance is given as a reduction of tax payable rather than as a reduction from taxable income, effectively giving tax relief at 10%".

Firstly is this the married allowance, whereby up to 10% of the total personal allowance may be transferred if unused, which I understand to be married allowance, or is this the addition allowance of £8,355 which I believe to be married couple's allowance and is age related?

Secondly, how is this an effective relief of 10%? If one spouse is paying tax at 20%, and they get a protion of the other spouse's allowance to use as relief, why is it not relief of 20%? 

Thirdly, why is this allowance taken off tax liability, and not off gross income as all other allowances are?

It really seems as if someone has spent weeks coming up with the most complex set of rules imaginable, and even having such similar names for different types of allowance is horribly confusing.

Any help much appreciated, thanks. 

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Hi Sharding,

I will do my best to answer your various questions:

Firstly, the Marriage Allowance and the Married Couple's Allowance are two different things.

1. The Married Couple's Allowance is an allowance is available to couples if they meet the marriage and age requirements. The tax relief you receive is 10% of the allowance you are entitled to. In 2015/16 the maximum allowance you could receive was £8355. As such the tax relief (amount deducted from their overall tax bill) they could receive was £835.50.

If your adjusted net income exceeded £27,700 the allowance you were entitled to was reduced by £1 for every £2 over the £27,700, with a minimum allowance available of £3,220 (tax relief at 10% = £322 deducted from overall tax bill).

Depending on when you married depends onwhether the allowance is calculated on the husband's income or the spouse / civil partner with the highest income.

HMRC guidance here https://www.gov.uk/married-couples-allowance/overview .

2. The Marriage Allowance is not age restricted. It does have other restrictions though. These are (a) the spouse / civil partner with the higher income must be a bsic rate taxpayer and (b) the spouse with the lower income must have an income level which means that they have not used their full personal allowance (£10,600 2015/16).

The Marriage Allowance works as follows. The spouse / civil partner with the lower income informs HMRC (online application) that they wish to transfer their used personal allowance to their spouse. Assuming they have not used the personal allowance they can transfer up to 10% (£10,600 x 10% = £1,060). This means the personal allowance for the spouse / civil partner with the lower income is reduced by £1,060 to £9,540. Correspondingly the personal allowance of the spouse / civil partner is increased by £1,060 to £11,660.

As the spouse / civil partner is a basic rate tax payer they will receive tax relief on this extra £1,060 worth of personal allowance at the 20% rate. This means they will pay £212 less on their overall tax bill (£1,060 x 20% = £212).

In terms of the tax calculation, HMRC simply adds the transferred Marriage Allowance to the personal allowance and this is deducted before the amount of income onwhich tax is due is calculated.

There was some confusion in 2015/16, as the HMRC systems did not initially apply the Marriage Allowance. asa result they had to issue revised tax calculations later in the year. This system issue is now resolved.

HMRC guidance here https://www.gov.uk/marriage-allowance.

Hope this helps clarify.

Best wishes,

Kathryn



Edited at 27 Feb 2017 05:31 PM GMT

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KathrynH said:


 



Edited at 27 Feb 2017 05:35 PM GMT

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KathrynH said:

KathrynH said:

Hi Sharding,

I will do my best to answer your various questions:

Firstly, the Marriage Allowance and the Married Couple's Allowance are two different things.

1. The Married Couple's Allowance is an allowance is available to couples if they meet the marriage and age requirements. The tax relief you receive is 10% of the allowance you are entitled to. In 2015/16 the maximum allowance you could receive was £8355. As such the tax relief (amount deducted from their overall tax bill) they could receive was £835.50.

If your adjusted net income exceeded £27,700 the allowance you were entitled to was reduced by £1 for every £2 over the £27,700, with a minimum allowance available of £3,220 (tax relief at 10% = £322 deducted from overall tax bill).

Depending on when you married depends on whether the allowance is calculated on the husband's income or the spouse / civil partner with the highest income.

HMRC guidance here https://www.gov.uk/married-couples-allowance/overview .

2. The Marriage Allowance is not age restricted. It does have other restrictions though. These are (a) the spouse / civil partner with the higher income must be a basic rate taxpayer and (b) the spouse with the lower income must have an income level which means that they have not used their full personal allowance (£10,600 2015/16).

The Marriage Allowance works as follows. The spouse / civil partner with the lower income informs HMRC (online application) that they wish to transfer their unused personal allowance to their spouse. Assuming they have not used the personal allowance they can transfer up to 10% (£10,600 x 10% = £1,060). This means the personal allowance for the spouse / civil partner with the lower income is reduced by £1,060 to £9,540. Correspondingly the personal allowance of the spouse / civil partner with the higher income is increased by £1,060 to £11,660.

As the spouse / civil partner with the higher income is a basic rate tax payer they will receive tax relief on this extra £1,060 worth of personal allowance at the 20% rate. This means they will pay £212 less on their overall tax bill (£1,060 x 20% = £212).

In terms of the tax calculation, HMRC simply adds the transferred Marriage Allowance to the usual personal allowance and this is deducted before the amount of income on which tax is due is calculated.

There was some confusion in 2015/16, as the HMRC systems did not initially apply the Marriage Allowance. As a result they had to issue revised tax calculations later in the year. This system issue is now resolved.

HMRC guidance here https://www.gov.uk/marriage-allowance.

Hope this helps clarify.

Best wishes,

Kathryn



Edited at 27 Feb 2017 05:31 PM GMT

 


 

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  • # 114759

KathrynH said:



 

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KathrynH said:

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  • # 114762

Thanks Kathryn,

I spent a while researching, and finally found an explanation on a Which? site that explained it. The manual is badly worded on this topic, but I understand it now, thanks to your post and Which?. 

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