One of my colleagues was recently told at a lecture that from April 2015 if a sole director took a salary of eg £8000 and the remainder of his income as dividends up to Basic Rate - then he would not be using his personal allowance and would therefore be able to transfer some to his spouse or civil partner. However, the gov.uk website states you need to have 'annual income of less than £10600 including pensions, savings and investments' which makes the original advice sound incorrect. Does anyone know which is correct?
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Replies (15)
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re marriage allowance
Umm, the HMRC website is misleading, the new registration process certainly implies that you can only transfer if your income less than £10,600 but the original notice just prescribed that both transferor and transferee had to be basic rate taxpayers.
So either a change, or the person writing the new statement has mis-understood.
I certainly thought that it was up to you how you transferred the allowance provided both were basic rate taxpayers.
Surely?
I certainly thought that it was up to you how you transferred the allowance provided both were basic rate taxpayers.
How can any transfer be possible if they are BOTH basic rate taxpayers?
For PA to be available for transfer, one of them needs to be a non-taxpayer. If they are both BR payers, then both have used up their PAs.
I think what is meant by "both BR payers" is actually, "neither are higher rate taxpayers" - to whom this whole thing doesn't apply.
Worse off
How can any transfer be possible if they are BOTH basic rate taxpayers?
Even if it were possible, they can only be worse off as a family unit.
More than likely, it'll make no odds.
Transfer
is there a cap on how much you can transfer?
To the original question - I imagine HMRC are not interested in telling you that you can transfer when both parties income is above the PA as the exercise is pointless for all concerned. I am curious as to why the OP thinks that a salary to 8,000 then dividends up to basic rate does not use the PA? I think someone, somewhere needs to re visit basic income tax pro formas.
Curious?
To the original question - I imagine HMRC are not interested in telling you that you can transfer when both parties income is above the PA as the exercise is pointless for all concerned. I am curious as to why the OP thinks that a salary to 8,000 then dividends up to basic rate does not use the PA? I think someone, somewhere needs to re visit basic income tax pro formas.
The tax credit on dividends is not refundable, so the individual gets no overall reduction of tax in respect of the £2,600 of personal allowances not being used against salary. The other half might have earned income in excess of their own personal allowance of £10,600 and would therefore have a reduction of tax if extra tax-free allowances were available.
Higher Rate
@martinscutt - the dividends are of course using the personal allowance, I agree, but as they would be effectively tax free without it the PA is being wasted on them.
Let's think here - is this how we deal with dividends now ? "Oh, they just don't count because they're taxed and you can't claim the tax back" ?
I don't think so .........
Trap
There's a trap here. Dividends do use up your personal allowance. They do count as income.
You just can't have the tax back.
Solution - pay salary of at least the personal allowance.
It seems that the intention is to peg the transferrable bit at 10% of the allowance. Could change at any point in time, obviously.
I'm not really getting the point of the "annual income has to be less than £10600" question. If neither spouse had income of less than £10600, why on earth would you want to be moving allowances about ?
What reduced personal allowance ?
No, that's not how we're treating them. But the OP was related only to basic rate dividends. I (and everyone here, I hope) knows the correct tax treatment of dividends, but have you tried explaining them to a client lately?
Of course, you should take care that you only take dividends up to the client's new HRT, taking into account the reduced personal allowance...
He doesn't have a reduced personal allowance.
That's the point.
He has (purely speculatively)
Salary £8000
Dividends £30000 (inc £3000 tax credit)
Total £38000
Personal £10600
Taxable £27400
Tax at 10% £2740
Tax Credit £3000
Excess £260 - not repayable.
