5th December 2013
A married couples and civil partners’ tax break, which is set to cost about £700m a year will start in April 2015, enabling people to transfer £1,000 of their income tax allowance to their partners.
The Chancellor George Osborne said: ‘The new transferable tax enables people to transfer £1,000 to their wife, husband or civil partner. This is just the start.’
To benefit from this one person must earn under the personal allowance, currently at £9,440 but rising to £10,000 in April 2014, and the other must not earn more than the basic rate threshold. The Chancellor says it could affect four million families.
The low incomes tax reform group has welcomed the plan.
Robin Williamson, Technical Director of LITRG, says: “The new transferable tax allowance will be of some help to couples where one partner has income below the personal allowance and wishes to transfer the unused balance of their allowance to the partner with the higher income. Pensioners in particular should benefit, as should working couples where one partner stays at home to look after the children.
“Nevertheless, the tax saving (£200 maximum) is small and, like the personal allowance itself, the value can be eroded if the couple is in receipt of means-tested benefits because entitlement to them is based on net, after-tax, income. If a reduction in tax causes net income to increase, means-tested benefits reduce proportionally. But the principle is right and the Chancellor commented that this was only a start.
Sean McCann, personal finance specialist at NFU Mutual says: “The tax break for married couples will be welcome news for many. It’ll be very interesting to see how easy it will be for people to claim and how many people benefit as a result. Not so long ago, there was some confusion around the child benefit tax charge. There could be another challenge ahead as families try to make the most of this benefit”.