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The transferable tax allowance: trick or treat?

John Housden

More details about Mr Cameron’s marriage tax incentive have been emerged.

Gordon Brown killed off the married couple’s allowance from April 2000. Its remnants still live on in the form of the married couple’s age allowance, which is worth a potential tax saving of up to £791.50 in 2013/14. The new transferable tax allowance  (TTA) is a very different beast. The Treasury has published scant details, but what we (roughly) know so far is:

As long as neither partner is a higher or additional rate tax payer, the TTA will allow married couples and civil partners to transfer £1,000 of personal allowance between themselves. The Treasury’s press release refers to ‘a fixed amount’, so it may not be possible to transfer less than £1,000. The maximum annual tax benefit is £200 − i.e. 20% of that £1,000.

A joint claim by both spouses/partners will be required (and it will only possible to make one via the internet, if Radio 4’s Moneybox is to be believed). Those ageing couples in receipt of the married couple’s age allowance will be excluded from claiming the TTA.

The TTA will not be available until 2015/16 and no payments will be made until summer 2016, once a couple’s income details are confirmed.

The Institute for Fiscal Studies (IFS) has number crunched the impact of the TTA, and has calculated the cost at about £700 million a year. The IFS’s main finding is that only 31% of couples (married or civil partners) will benefit. Two-earner couples − those ‘hard-working families’ beloved of politicians − will most likely see no tax saving at all because both partners are likely to be taxpayers. The IFS estimate is that fewer than one in five families with children will save tax when the TTA is introduced. The winners are generally in the third to sixth income decile groups, according to the IFS.

The IFS sums up the TTA succinctly: “ … the policy is not a general recognition of marriage in the income tax system.”


Labour’s tax and pension policies

John Housden

Labour’s Glasgow annual conference provided more insight into its tax and pension plans.

The major new piece of tax policy to emerge was Ed Miliband’s promise to stop the final 1% cut in the mainstream rate of corporation tax (to 20%), which George Osborne had announced in his 2013 Budget. The savings from this will be used to cut business rates on properties with rateable values of up to £50,000. Otherwise the news on tax and pensions emerging from the main conference platform was confirmation of plans already announced.

In his main speech, Mr Miliband confirmed the return of the 10% income tax band, pointedly saying that, “the next Labour government will be different from the last.” Ed Balls, the Shadow Chancellor, also gave the 10% tax band a mention, promising, “a tax cut for 25 million hard-working people on middle and lower incomes.” The unspoken subtext of the ‘25 million figure’ was that higher and additional rate taxpayers would not benefit. The 10% band would be paid for by “a mansion tax on properties worth over £2 million, introduced in a fair way.” Mr Balls also said there would also be an increase to the bank levy to raise an extra £800 million a year and a repetition of the tax on bankers’ bonuses.

On the pensions front − which was largely ignored by other speakers − Mr Balls repeated that contribution tax relief for “the highest earners” would be restricted to “the same rate as the average taxpayer” − presumably a refloating of the previously scuppered special annual allowance. The winter fuel allowance would be removed from “the richest 5% of pensioners.” Mr Balls accepted that “over the long-term, as our population ages, there will need to be increases in the retirement age,” but he gave no numbers.

Labour is not giving away much detail, but the shadow of John Smith’s 1992 election-losing promise of an income tax increase has not completely faded.


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