This is probably only resolvable once it has happened. A spouse / partner has an income of, say, £8,000 pension and £12,000 dividends in 2016/17. The spouse / partner applies for Marriage Allowance Transfer. Assuming that the other spouse / partner qualifies as a recipient of MAT - and that HMRC applies the legislation correctly - what happens? It could be that the recipient gets a £220 credit, but what of the applicant? More of the applicant's income will be taxed, but is that £1,100 at 7.5%?
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HMRC will say that the transfer's not due because the spouse/partner's income is £20000.
Care to dispute at FTT ?
You'd be doing us all a big favour .......
If HMRC were to accept and process the transfer then the tax affect on the transferor will need to be ascertained by generating a tax computation with the amount of the reduced PA used in place of the PA and optimising the result accordingly. In this particular case the tax payable would indeed increase by 7.5% of 1,100 using the most efficient allocation of PA.
Well, I think we all agree that MAT is a poorly thought out, poorly admistered provision, with huge numbers of people who would benefit not taking up the option for one reason or another.
Which might come as quite a shock to HMRC. They've spent some time trying to make sure no-one can "exploit" MAT, but this looks like a scenario - and not a particularly rare one - where HMRC end up £137.50 down on the deal.
But the usual state of affairs in the most common application of the transfer is for HMRC to be down £220 on the deal, I don't see the issue here.