Restriction of Starting Rate?

Does Marriage Allowance transfer affect the starting rate band for interest received?

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If a taxpayer “transfers out” the Marriage Allowance, does this have the effect of restricting the starting rate for interest received in the year?  I thought not, but my software seems to disagree.  Who’s right here?

Replies (21)

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Stepurhan
By stepurhan
16th Apr 2024 22:22

Some figures would be helpful. There are other things that affect the interest allowance, so we really need figures to eliminate those as a factor.

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By Paul Crowley
16th Apr 2024 22:49

Marriage allowance is a transfer of........ effectively money, provided that the transferee pays enough tax.
But low income investment income stuff is a three hour lecture.

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By songb1rd
16th Apr 2024 23:22

Here's the kind of thing that I mean. Client receives income totalling £15,000, plus, in addition, £3,000 interest from savings. The starting rate for interest is up to (17,570 - 15,000) = £2,550. So £1,000 is covered by the nil rate band, and the residual £2,000 is covered by the Starting Rate band.

Now, if the client transfers the Marriage Allowance to their spouse, would the Starting Rate go down from 2,550 to 1,290 (2,550 - 1,260), which would render £740 interest subject to basic rate tax, or would it stay the same?

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By Tax Dragon
17th Apr 2024 06:00

(12,570 - 1,260) + 5,000 = 16,310.

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By songb1rd
17th Apr 2024 09:37

Thanks, Tax Dragon. So then I take it that the transferring "out" of the Marriage Allowance restricts the Starting Rate by up to 1,260, but transferring "in" does not increase the Starting Rate at all?

I don't suppose you have a Statutory reference to that effect, do you?

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By songb1rd
17th Apr 2024 09:38

Thanks, Tax Dragon. So then I take it that the transferring "out" of the Marriage Allowance restricts the Starting Rate by up to 1,260, but transferring "in" does not increase the Starting Rate at all?

I don't suppose you have a Statutory reference to that effect, do you?

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Replying to songb1rd:
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By Tax Dragon
17th Apr 2024 11:01

S55B(6) ITA 2007?

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By songb1rd
17th Apr 2024 09:38

Thanks, Tax Dragon. So then I take it that the transferring "out" of the Marriage Allowance restricts the Starting Rate by up to 1,260, but transferring "in" does not increase the Starting Rate at all?

I don't suppose you have a Statutory reference to that effect, do you?

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By songb1rd
17th Apr 2024 09:38

Thanks, Tax Dragon. So then I take it that the transferring "out" of the Marriage Allowance restricts the Starting Rate by up to 1,260, but transferring "in" does not increase the Starting Rate at all?

I don't suppose you have a Statutory reference to that effect, do you?

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By Not Anonymous
17th Apr 2024 12:19

It doesn't restrict it no.

The applicant will have a reduced Personal Allowance but the full £5,000 savings starter rate band would be still apply (specifically £1,310 if their non savings non dividend income was exactly £15,000).

The savings nil rate band of £1,000 interest taxed at 0% can only be used after any savings starter rate band is used.

I think what you are missing is that applying for Marriage Allowance has reduced their Personal Allowance. This can have a knock on effect later but doesn't alter the fact that the savings starter rate band is still £5,000.

And likewise there is no impact on it (if relevant) for the recipient. They get a tax reducer, currently worth £252.

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Replying to Not Anonymous:
RLI
By lionofludesch
17th Apr 2024 13:00

Not Anonymous wrote:

And likewise there is no impact on it (if relevant) for the recipient. They get a tax reducer, currently worth £252.

This is the key point.

They don't get an allowance.

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By songb1rd
17th Apr 2024 14:14

So if it (Marriage Allowance) is only a "reducer" (i.e. a transfer of £252.00), and they (the MA recipient) don't get an allowance (thereby not boosting the Stating Rate band), one would suppose that neither is the MA donor parting with an allowance, and so, that the Starting Rate band thereby doesn't go down.

Perhaps I shouldn't be referring to "band" - yes, the band remains the same (£5,000) - I guess I mean the "threshold". The normal threshold is 12,570 + 5,000 = 17,570. The threshold remains £17,570 for the transferee, but it's reduced to (12,570 -1,260) + 5,000 for the transferor.

Is that correct, and is there an HMRC website link which explains this?

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Replying to songb1rd:
RLI
By lionofludesch
17th Apr 2024 14:23

songb1rd wrote:

So if it (Marriage Allowance) is only a "reducer" (i.e. a transfer of £252.00), and they (the MA recipient) don't get an allowance (thereby not boosting the Stating Rate band), one would suppose that neither is the MA donor parting with an allowance, and so, that the Starting Rate band thereby doesn't go down.

Perhaps I shouldn't be referring to "band" - yes, the band remains the same (£5,000) - I guess I mean the "threshold". The normal threshold is 12,570 + 5,000 = 17,570. The threshold remains £17,570 for the transferee, but it's reduced to (12,570 -1,260) + 5,000 for the transferor.

Is that correct, and is there an HMRC website link which explains this?

Are you assuming symmetry?

Recipient gets a £252 tax reducer, donor gets a £252 tax bill?

That's not going to work, is it?

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Replying to songb1rd:
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By Not Anonymous
17th Apr 2024 15:06

songb1rd wrote:

So if it (Marriage Allowance) is only a "reducer" (i.e. a transfer of £252.00), and they (the MA recipient) don't get an allowance (thereby not boosting the Stating Rate band), one would suppose that neither is the MA donor parting with an allowance, and so, that the Starting Rate band thereby doesn't go down.

Perhaps I shouldn't be referring to "band" - yes, the band remains the same (£5,000) - I guess I mean the "threshold". The normal threshold is 12,570 + 5,000 = 17,570. The threshold remains £17,570 for the transferee, but it's reduced to (12,570 -1,260) + 5,000 for the transferor.

Is that correct, and is there an HMRC website link which explains this?

That is it in a nutshell. SSR band is unchanged. But the Personal Allowance is reduced.

LITRG have a reasonable guide here, looks at the the "mechanics" bit.

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By songb1rd
17th Apr 2024 15:06

Yes, Lionofludesch, I guess I was assuming a kind of symmetry. In the example I gave last night at 11.22pm, up until this year, it's been advantageous for the wife to transfer the MA to the husband. For 2023/24, both spouses tax bills exceed £252.00, so in that sense there's no reason to transfer the allowance.

However the husband's interest received in 2023/24, unlike the wife's, exceeds the Starting Rate threshold, and I noticed that by transferring the MA from wife to husband in 2023/24, some of the wife's interest falls into the basic rate bracket, and I was surprised to find that none of the husband's interest fell out of this bracket...

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Replying to songb1rd:
RLI
By lionofludesch
17th Apr 2024 15:19

songb1rd wrote:

Yes, Lionofludesch, I guess I was assuming a kind of symmetry. In the example I gave last night at 11.22pm, up until this year, it's been advantageous for the wife to transfer the MA to the husband. For 2023/24, both spouses tax bills exceed £252.00, so in that sense there's no reason to transfer the allowance.

However the husband's interest received in 2023/24, unlike the wife's, exceeds the Starting Rate threshold, and I noticed that by transferring the MA from wife to husband in 2023/24, some of the wife's interest falls into the basic rate bracket, and I was surprised to find that none of the husband's interest fell out of this bracket...

Yeah - but the most likely reason for claiming the MA is that the donor doesn't have enough income to pay tax. So the donor isn't going to thank you for creating a tax bill of £252 when they were paying nothing without the claim. So they're docked allowances instead.

You've stumbled on one of the advantages of this anomaly.

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Replying to songb1rd:
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By Not Anonymous
17th Apr 2024 15:20

songb1rd wrote:

Yes, Lionofludesch, I guess I was assuming a kind of symmetry. In the example I gave last night at 11.22pm, up until this year, it's been advantageous for the wife to transfer the MA to the husband. For 2023/24, both spouses tax bills exceed £252.00, so in that sense there's no reason to transfer the allowance.

However the husband's interest received in 2023/24, unlike the wife's, exceeds the Starting Rate threshold, and I noticed that by transferring the MA from wife to husband in 2023/24, some of the wife's interest falls into the basic rate bracket, and I was surprised to find that none of the husband's interest fell out of this bracket...

Forget the SSR band, that is really a red herring.

Marriage Allowance applicant gets a reduced Personal Allowance. Rate band remain unchanged above the reduced Personal Allowance.

Marriage Allowance recipient gets an unchanged Personal Allowance and the rate bands remain the same. But theater their liability is they can then knock £252 off it.

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By songb1rd
17th Apr 2024 15:59

Lionodesch, I guess the advantage for 2023/24 is in not claiming the Marriage Allowance. If MA were claimed, 740 interest becomes taxable for the wife, on top of the 1,260 at 20%, thereby increasing her tax bill by £400.00. The husband's tax bill would only go down by £252.00 - and it's the joint liability that matters!

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Replying to songb1rd:
RLI
By lionofludesch
17th Apr 2024 16:02

songb1rd wrote:

Lionodesch, I guess the advantage for 2023/24 is in not claiming the Marriage Allowance. If MA were claimed, 740 interest becomes taxable for the wife, on top of the 1,260 at 20%, thereby increasing her tax bill by £400.00. The husband's tax bill would only go down by £252.00 - and it's the joint liability that matters!

Whatever you think.

Or whatever the software says. Unless it's Iris, obviously.

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By songb1rd
17th Apr 2024 16:13

They all seem to be connected, or connecting to IRIS these days...

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By Tax Dragon
17th Apr 2024 18:03

I understand your point now. I make it £690 not £740, but yes the tax goes up by £390 - £138 joint.

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