New Transferable Tax Allowance
In April 2015
With effect from 6 April 2015, married couples and civil partners will, under certain circumstances, be able to transfer an element of the income tax personal allowance from one partner to another. This will enable a lower-earning spouse to transfer some unused allowance in order to reduce the couple’s total tax bill.
Criteria
In order to qualify the following criteria apply:
- One partner must earn below the personal allowance (£10,600 from 6 April 2015), therefore some of their personal allowance is being wasted due to their low income.
- The higher earning partner’s income cannot exceed the 20% basic rate income tax band (£42,385 for 2015/16).
- The couple must be married or in a civil partnership, co-habiting couples do not qualify for the transfer.
- Couples entitled to claim the Married Couples Allowance (i.e. one partner was born before 6 April 1935) do not qualify either.
The low income partner can transfer up to £1,060 of their allowance to save income tax for their partner. Their partner will now have a total personal allowance of £11,660 for 2015/16, saving an additional £212.
Election
The allowance is transferred by making an election with HM Revenue & Customs (“HMRC”), which must be made within 4 years of the end of the relevant tax year (i.e. an election for 2015/16 must be made by 5 April 2020). There are a number of other conditions for the election, for example it remains in force until it is formally withdrawn by the individual. A withdrawal can only take effect from the following tax year after notifying HMRC.
Conclusion
Where advisers only act for one spouse, consideration will have to be given to the income of the other spouse, with an annual review to take account of changes in circumstances that might mean the couple no longer qualify. If you have any queries on the transferable tax allowance or tax in general, please contact our Tax Director Jenny Marks.