Introduction Of A Transferrable Income Tax Allowance


From April 2015, the Transferable Tax Allowance (TTA) will enable spouses/civil partners to transfer a fixed amount of their personal allowance to their spouse/civil partner. This option will be available to couples where neither partner is a higher rate taxpayer.

Essentially, married couples or civil partners who earn less than the annual personal income tax allowance (currently £9,440) will be allowed to transfer £1,000 of their allowance to their spouse/civil partner under the new rules. This will mean that the higher earning spouse/civil partner will be able to earn £1,000 more before they start paying income tax, resulting in a tax saving of £200 (i.e£1,000 x 20%).

The policy benefits married couples and civil partners where one is a basic rate taxpayer (earns below £41,450 currently) and the other has an unused personal allowance.

The change will apply from tax year 2015/16 and must be claimed online. The relief is likely to be delivered as a rebate at the end of the tax year. Couples will be entitled to the full benefit in their first year of marriage.

The Institute of Fiscal Studies (IFS) has set its number crunchers to work on the proposals to see who will benefit:

  • Less than a third of all couples (whether married or in civil partnership) will qualify for the new tax break.
  • Of those who could claim, only about one in three will be couples with children.
  • About one in three of the potential beneficiaries will be pensioners.

The IFS also gives a brief checklist of those who will not qualify:

  • Couples whose members both have incomes above the personal allowance.
  • Couples which include a higher rate (40%) or additional rate (45%) income tax payer.
  • Couples whose members each have incomes below the personal allowance: they would pay no income tax in the absence of the policy, so cannot benefit from any income tax cut.

As the IFS wryly notes, “clearly…the policy is not a general recognition of marriage in the income tax system.” However, this measure provides good news for households on lower incomes as it will be of most benefit to them.

Source: Personal Finance Society

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By Tony Czypionka | Accountant and Tax Adviser

Tony is the Accountant and Tax Adviser at Mantle Financial Planning Read more >>

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