Tax, marriage & transferable allowances

Since the introduction of independent taxation in 1990, all individuals have been assessed for tax as separate persons.  This reform reversed a principle that had underpinned the tax system for almost two hundred years: that a married woman’s income was simply part of her husband’s income and should be taxed as such.  Prior to the introduction of independent taxation, the then Conservative Government consulted on allowing husbands and wives to transfer their personal tax allowance to their spouse.  In the event, the Government acknowledged several objections to this proposal and chose another route: taxing all persons as individuals, each given their own tax allowance, but also providing an extra allowance for married persons – the married couple’s allowance (MCA).

Personal allowances are worth more to higher rate taxpayers, since they represent a fixed sum which is exempted from tax at an individual’s highest marginal tax rate.  In his March 1993 Budget, the then Chancellor Norman Lamont argued that this was contrary to the purpose of the MCA and proposed it would be ‘restricted’ to 20% from April 1994, so that it was worth the same amount to all eligible taxpayers.  In successive years the MCA was restricted further: first to 15% (1995/99), then to 10% (1999/00).  In his 1999 Budget the then Chancellor Gordon Brown announced that the MCA would be withdrawn from all couples from 6 April 2000, except couples who had already reached 65 or over. This remains the case. As a consequence only those couples in which one partner is at least 84 years old in this tax year (2018/19) is entitled to claim the MCA.^[1]

In July 2007 the Conservative think tank, the Centre for Social Justice, published a report on social breakdown, recommending “the transferring of tax allowances between married couples … to support the institution of marriage because of its proven advantages to children and the wider society.”[2]  In the next months the Conservative Party gave a general commitment to ‘recognising’ marriage in the tax system,[3] and in the 2010 General Election it proposed that couples and civil partners who were basic rate taxpayers should be entitled to transfer just part of their allowance – worth, in effect, up to £150.[4] 

After the election, the new Coalition Government did not make any specific proposals for transferable allowances, and the issue was not mentioned in its first Budget on 22 June 2010.[5] On a number of occasions over the next three years, Ministers underlined that the Government was committed to bringing forward proposals to recognise marriage through the tax and benefits system,[6] but it was not until September 2013 that the then Prime Minister, David Cameron, announced the introduction of a new transferable tax allowance for married couples and civil partners. From April 2015 spouses and partners would be allowed to transfer £1,000 of their own personal tax allowance to their partner, provided neither of them were higher rate taxpayers. In the March 2015 Budget it was confirmed that the personal allowance would be £10,500 for 2015/16, so that the ‘marriage allowance’, as it is sometimes called, would be set at £1,050. The allowance would be set at 10% of the personal allowance in future years.^[7]

Since the introduction of the new allowance there have some concerns about the level of take-up. It is estimated that a total of 4.2 million couples are eligible for the allowance, of which to date around 3.2 million have made a claim; the general time limit for making a claim for repayment of overpaid tax is four years, so that eligible couples who have not claimed for the tax year 2015/16 will have until 5 April 2020 to do so.^[8]

In the Autumn Budget in November 2017, the Chancellor Philip Hammond, announced that the personal allowance would be £11,850 from April 2018, and the ‘marriage allowance’ would be £1,190 for 2018/19. As recipients use the transferred allowance to offset against their liability to basic rate tax, which is charged at 20%, the allowance would be worth up to £238 for the 2018/19 tax year. At this time it was also announced that claims for the allowance would be allowed in cases where a partner has died before the claim was made, and that these claims will be able to be backdated by up to 4 years.^[9]

This paper discusses the arguments that have been made for transferable tax allowances, first in the context of independent taxation, and then, more recently, in relation to the work of the Centre for Social Justice and the Coalition Government’s introduction of the marriage allowance in April 2015. A second, shorter paper gives details of how taxpayers can claim the new allowance, and how it has been amended since being introduced.[10]

Notes : 

[1]    HMRC publish details for those who wish to claim the allowance on Gov.uk.

[2]    Social Justice Policy Group, Breakthrough Britain: Volume 1 – Family Breakdown, July 2007 pp 70-1

[3]    Conservative Party, Repair : plan for social reform, 2008 p41

[4]    Institute for Fiscal Studies press release, Conservatives to recognise one third of marriages in the tax system, 9 April 2010

[5]    The agreement underpinning the Coalition simply stated that Liberal Democrat MPs would be allowed to abstain from voting for transferable allowances (HMG, The Coalition: our programme for government, 20 May 2010 p30).

[6]    see, HC Deb 11 December 2012 cc137-8; HC Deb 18 March 2013 c423W; HC Deb 2 July 2013 c881

[7]    HM Revenue & Customs, Transferable tax allowances for married couples and civil partners: tax information & impact note, 19 March 2014

[8]    PQ169811, 6 September 2018. HMRC also publish guidance on this allowance on Gov.uk.

[9]    Autumn Budget 2017, HC 587, November 2017 para 3.5-6; Annex A (Rates and allowances) in HM Treasury, Overview of tax legislation and rates, 22 November 2017

[10]   Income tax allowances for married couples, Commons Briefing paper CBP870, 4 May 2018