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Marriage Allowance Transfer

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Say wife has £14k rental profit before mortgage interest restriction, and then an additional £6k of mortgage interest expense, and no other income.

 

Husband is basic rate.

 

Can wife transfer £1,250 marriage allowance over to husband?

 

My thinking is no, becuase wife's income is actually above the personal allowance (and the £6k mortgage interest is then a tax credit rather than reducing her income).

 

However, I'm doubting myself becuase on the Gov website it states you can transfer if "you do not pay income tax OR your income is below your personal allowance"...Well, wife does not pay income tax, so this condition is then met, suggesting she could transfer it.

 

I know the Gov website isn't the actual legistlation and shouldn't be treated as gospel, so is this just a case of an ambiguous sentence on there, and my original thinking that she cannot transfer is correct?

 

Thank you for any help! 

 

Replies (14)

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By SXGuy
14th Jan 2021 12:12

I think the OR is a red herring and probably should read AND.

As you say the restricted finance relief is a reduction in tax not a reduction in profit, so if her profit is 12500 or higher, regardless of the tax outcome there is no PA to transfer.

Thanks (1)
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By stephenkendrew
14th Jan 2021 12:30

Yes you can.

There is no requirement for income to be below £12,500 for the Marriage Allowance to be transferred. Usually there is, of course, no advantage in doing so.

In the situation you outline, however, the wife has income of £12,500 (£14,000 less 25% of £6,000). Transferring the Marriage Allowance gives her a tax liability of £250. She can then use the remainder of the interest to reduce this to £0 (i.e. the same without the transfer).

The husband does, however, get a £250 refund from the transfer.

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Replying to stephenkendrew:
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By Paul Crowley
14th Jan 2021 12:39

Agree
Almost no rules
HMRC guidance is not the true position at all and they should be ashamed of themselves

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Replying to Paul Crowley:
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By Tax Dragon
14th Jan 2021 13:01

Paul Crowley wrote:

Almost no rules.

Oh Paul...

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Replying to Tax Dragon:
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By Paul Crowley
14th Jan 2021 13:54

HR is the only issue
NOT what HMRC pretend the rules are

Now why would HMRC look to knowingly mislead all taxpayers?

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Replying to Paul Crowley:
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By Tax Dragon
14th Jan 2021 16:02

Paul Crowley wrote:

HR is the only issue.

Oh Paul...

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By Mr Hankey
14th Jan 2021 12:42

Thank you for the replies.

And Sorry, I wasn't clear in the original question, the £6k is additional mortgage interest (ie £14k rental profit includes 25% and the £6k is the remaining 75%) which would mean wife's tax liability would be £nil and not £250.

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By Mr Hankey
14th Jan 2021 12:57

Interestingly if I run the wife's numbers through software (Taxfiler), select for her to transfer 10% of her personal allowance to her husband, the computation it produces leaves her personal allowance intact at £12,500 which suggests it has not been transferred.

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Replying to Mr Hankey:
RLI
By lionofludesch
14th Jan 2021 13:42

Yes, you can claim MAT, so long as neither is a higher rate taxpayer.

HMRC sometimes claim that the taxpayer has to have income below the personal allowance. That's not a rule at all. Just made up by HMRC.

She has a lower personal allowance, leaves more in charge to tax, which (hopefully) you can eliminate with the interest tax reducer.

And you can carry any excess interest forward. It's not lost.

Thanks (1)
Replying to Mr Hankey:
RLI
By lionofludesch
14th Jan 2021 13:55

Mr Hankey wrote:

Interestingly if I run the wife's numbers through software (Taxfiler), select for her to transfer 10% of her personal allowance to her husband, the computation it produces leaves her personal allowance intact at £12,500 which suggests it has not been transferred.

Not on my Taxfiler, it doesn't.

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Replying to lionofludesch:
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By Mr Hankey
14th Jan 2021 14:24

That's interesting, I've created a new test client on Taxfiler with the same numbers and it does transfer the allowance.

In this case Wife is a non-resident which seems to be causing the issue. I bet if you run your numbers again but make the client non-resident you will find the same thing, that the personal allowance will remain intact without being transferred.

That's puzzling because ITA 2007 (56) confirms if they are EEA nationals they can still use marriage transfer allowance (they both hold British passports in this case).

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Replying to Mr Hankey:
RLI
By lionofludesch
14th Jan 2021 14:41

Agreed - one of those hundred or so "exceptions" ?

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By stephenkendrew
14th Jan 2021 15:05

I think that changes things.

Look at section 55 C (d) - "where the individual meets the requirements of section 56 (residence) for the tax year by reason of meeting the condition in subsection (3) of that section, the individual meets the condition in subsection (2) of this section."

Being a national of an EEA state is one of the clauses in subsection 3, so subsection 2 does apply.

This says that "The condition is that the individual's hypothetical net income for the tax year concerned is less than the amount of the personal allowance to which the individual is entitled for that tax year under section 35 or 37. "

In other words, they must have income of less than the personal allowance to be able to claim the MA transfer.

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By Mr Hankey
14th Jan 2021 15:45

Ah ok, that makes sense now seeing that.

Thank you everyone for replying, your time is appreciated.

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