The new income tax marriage allowance may be short-lived

The new transferable tax allowance for married couples and civil partners may be short-lived if Labour win the general election.

Eligible couples can now register an interest online, and registered couples will be invited in stages, after 6 April, to apply for the allowance. It will not be possible to call HMRC to register an interest, but those who do not register will still be able to apply “later in 2015”. An HMRC issue briefing provides further details, and the CIOT’s Low Incomes Tax Reform Group has published some useful guidance.

From 2015/16 a married person or member or a civil partnership will be able to transfer 10% of their personal allowance to the other spouse or partner, so long as the transferee is not liable to income tax at the higher rate or the additional rate. The maximum tax saving for 2015/16 will be £212, or just under £18 a month.

“This measure recognises marriage and civil partnerships in the income tax system,” said a tax information and impact note. “Taking the tax liabilities of a couple together, it can provide a financial benefit where one spouse or civil partner has an income less than their personal allowance.”

David Cameron has said the policy is about “valuing commitment”. More than four million married couples and 15,000 civil partnerships will be eligible and the application process is simple, the government says.  But no-one is seriously suggesting that a tax saving of £4 a week is going to persuade a couple to marry, or to stay married.

The complex rules are set out in Finance Act 2014. Paul Johnson, director of the Institute for Fiscal Studies, has noted that they create an “infinite” marginal rate of tax because the full allowance is withdrawn if one partner becomes liable to higher rate tax.

“We think it is a dud of a policy,” said Labour’s shadow Treasury minister Catherine McKinnell during a Commons debate on the Finance Bill last April. The measure was “highly restrictive and very complicated”.

She noted that the measure will not benefit “married couples and civil partners on the very lowest incomes where both spouses earn below the income tax personal allowance”, nor will it benefit “couples where both spouses, possibly both basic rate taxpayers, have incomes higher than the personal allowance and therefore have no unused portion to transfer”.

The government argued that these couples had benefited from other tax measures. Financial secretary David Gauke said the purpose of the new measure was to reinforce the institution of marriage while providing support for many households that have not been able to benefit fully from changes to the personal allowance.