My VIP Tax Team question of the week: Married Couples Allowance

 

My client is a UK resident individual who previously had dividend income and pension income amounting to around £30,000. In the current tax year, 2022-23, he will only be receiving pension income of around £15,000 as he sold all his shares in the previous tax year. He has been married since 1970 and as he was born before 6 April 1935, usually claims the married couple’s allowance. His wife also received pension income each tax year of around £20,000. As his income has substantially reduced this year, how will this affect his claim?

Married couple’s allowance is available where the following conditions are met (ITA 2007 s45/46):

  • The couple are married or in a civil partnership for at least part of the tax year
  • The couple are living together for at least part of the tax year
  • The claimant meets the requirements of ITA 2007 s56 (UK resident, UK/EEA National etc.)
  • One of the spouses or civil partners must have been born before 6 April 1935.

For marriages on or after 5 December 2005, the spouse or civil partner entitled to the allowance is the one with the highest income. Where the marriage was before 5 December 2005, it is the husband who is entitled to claim the allowance although it is possible for spouses married before this date to make an election for the rules applying to later marriages to apply to them.

The married couple’s allowance for the 2022-23 tax year is £9,145. This can be reduced if the individuals adjusted net income is in excess of £31,400 but is subject to a minimum amount of £3,460. (ITA 2007 s43) The restriction of the allowance is not discussed in detail here as it is not applicable to this client, but legislation covers this in ITA 2007 s45/s46.

The allowance works by deducting 10% of the available allowance against the individual’s income tax liability. It works as a tax reducer and therefore cannot be used to create a loss but can bring the individuals income down to nil. This means that in your client’s case, as he would be entitled to the full allowance, it will bring his income tax liability down to nil but there will still be some of the allowance remaining.

In this scenario where there is unused relief remaining, it is possible to transfer the unused amount to the other spouse. Your client could therefore consider transferring the unused amount to his wife to be offset against the income tax liability on her pension income to ensure the remaining amount is not wasted.

The conditions for the transfer are found in ITA 2007 s51 as follows:

  • Transferor must notify HMRC that the conditions for a claim are met
  • Transferee must make a claim for the transfer of the unused relief
  • Transferee meets the conditions in ITA 2007 s56 (typically either UK resident, UK national or EEA national but see s56 for full list of conditions)

The claim can be made via self-assessment on the Additional Information pages (SA101) page AI 3. If your client is outside of self-assessment, they can contact HMRC by phone and make a claim:

https://www.gov.uk/married-couples-allowance/how-to-claim

It is also possible for the transferee spouse to make a transfer back of unused relief to the original claimant under ITA 2007 s52. This is unlikely to be needed in this scenario as the unused amount of relief transferred across to the wife will likely be fully utilised against the pension income.

 

Please share this article with your clients

 

 


Back to Community
mm

Apprentice Tax Advisor

I joined the team in 2020 as an Apprentice and i am working towards attaining the ATT qualification.

My VIP Tax Team question of the week: Medical Treatment for Employees
My VIP Tax Team question of the week: Corporation Tax Payment Dates
My VIP Tax Team question of the week: Married Couples Allowance