New Tax Allowance for Married Couples

It is proposed that from April 2015 married couples or civil partners could benefit from a £1,000 transferable allowance, worth up to £200 in tax relief.

The tax break will only apply to basic rate tax payers, where one spouse is earning less than their personal allowance. In the current tax year that’s one spouse earning less than £41,450 and the other earning below £9,440.

In effect, if you are paying basic rate tax and your partner doesn’t use all of their personal allowance, you will be able to have some of it to reduce your tax bill.  The maximum transferable amount is £1,000 therefore a couple could benefit from £200 as a result.

It is anticipated that the main winners of the proposed tax break will be stay-at-home mothers or women working part-time, whose husbands are basic rate earners.

Example:

Mr Blue is the sole director and shareholder of Ocean Ink Limited.  His 2013/14 director’s fees amount to £7,680. He has benefits in kind and savings income totalling £4,000. His gross dividends total £29,770.  Mr Blue has total income of £41,450 and an income tax liability of £448.

His wife does some part time admin work for the company and receives a small salary of £6,000, she has no other income.

In this example Mrs Blue could transfer £1,000 of her unused personal allowance to her husband, who in turn will save £200 in income tax. 

If in the example above Mr Blue’s benefits in kind and other income totalled £1,760 or less then the transfer of allowance would not benefit the couple as Mr Blue would not have an income tax liability. His own personal allowance is sufficient to cover his director’s salary, benefits in kind and other income.  No additional income tax is due on dividends subject to basic rate tax.  In this scenario it may be beneficial for Mr Blue to reconsider his remuneration package.

Couples will have to apply online and will receive the benefit for the 2015-16 tax year.  This new proposal is not to be confused with the existing Married Couple’s Allowance for married pensioners.

Don’t miss out on tax saving opportunities; contact us in plenty of time to consider tax planning.

The information contained in this briefing is based on information available as at the date posted and may be subject to amendment. It is written as a general guide and is not a substitute for professional advice. You are strongly recommended to obtain specific professional advice from us before you take any action. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this briefing can be accepted by Baker Watkin LLP or the partners.

 

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