TAX: Transferrable tax allowances
From the 15/16 tax year it will be possible for spouses and civil partners to transfer a part of their personal allowance to their “other half” if it would benefit them as a couple from a tax perspective.
Who is eligible to transfer?
Firstly, the transfer is only available to those married or in a civil partnership.
Secondly, the person “donating” some of their personal allowance must either be a non-taxpayer or, only be paying income tax at a basic rate, dividend rate or the starting rate for savings. The person “receiving” the additional allowance must also only be paying tax at basic rate, dividend rate or starting rate for savings. Basically, the rules are designed to restrict transfers to someone who is paying higher or top rate tax.
How much is transferrable?
The personal allowance for 15/16 is £10,600, as per the Autumn Statement 2014. Effectively, 10% of this can be transferred.
When is it worthwhile to transfer?
In short, the transfer is worthwhile when the personal allowance can be utilised more effectively by the other partner, to collectively save tax.
A couple of relevant examples:
- The personal allowance of a “stay at home parent” with no income is wasted and if transferred to a basic rate taxpayer the couple will jointly save £212 (15/16)
- The personal allowance is also wasted when one partner only earns dividend income, as the 10% tax credit cannot be claimed. If the other partner is a basic rate taxpayer and the election to transfer is made, the couple will jointly have an extra £212 in their back pocket.
How to make an election to transfer
Transfers can be made up to four years after the tax year – so there is no immediate rush.
If an election is made for a tax year, within the tax year then the transfer will be continued for all future tax years until it is withdrawn. If made following the end of a tax year it will just apply to that year in question and a new election will need to made next year.
Figurit can help calculate whether a transfer is worthwhile based on your own circumstances. The amounts saved are relativey small but every little bit helps in reducing your overall tax contributions.
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