As we write this column, approximately 6 weeks before the end of the tax year, we still have about 3 weeks to wait until we know what changes will take effect for the new tax year. Whilst this is totally unsatisfactory we shall look at what actions it may be advisable to take before 5th April.
Marriage Allowance
This is an absolute must for any couple where the higher earner is paying tax only at the basic rate (that is earning less than £50,000) and the lower earner has unused personal allowances (that is earning less than £12,500). Under these circumstances, the lower earner can elect to transfer up to 10% of his or her allowance to the higher earner.
The election must be made by the lower earner and can be made either by telephone by calling 0300 200 3300, or online at https://www.gov.uk/apply-marriage-allowance. In the current year, making this election will save the couple tax of £250.
Importantly, if the same conditions applied in previous years then the claim can be backdated for up to 4 years. Currently, that means that you can claim for tax year from 5th April 2015 onwards. However, on 6th April the claim for the year to 5th April 2015 will no longer be available, meaning that you will no longer have the ability to reclaim £210 for that year.
Personal Pension Contributions
Tax relief for personal pension contributions are given for the specific tax year in which the contributions are made, and they cannot be carried back. Therefore, if you want relief against your income for the tax year to 5th April 2020 then the contributions must be made before that date.
This may be important for a number of reasons. Firstly, there is an annual limit on the amount that you can contribute in any tax year. Therefore, if you wish to contribute up to this maximum then you will need to do so before this date. However, the contributions may effect a larger number of people in another way. The contributions increase the “net relevant earnings (NRE)” of the taxpayer, and that may be important in two ways if your earning before taking account of the contributions are above £50,000.
Firstly, child benefits are withdrawn progressively if the higher earner has NRE above £50,000. Secondly, the marriage allowance as above is no longer transferable. For instance, if you have income of £52,000 with no pension contributions being paid then this will result in child benefits being restricted. However, a pension contribution of £2,000 (£1,600 actual payment plus tax relief of £400) will stop any restriction being made. It will also enable the transfer of the marriage allowance to still be made.
Not forgetting, of course, that the forthcoming budget may have other consequences that we do not yet know about.
If you have any queries in respect of this article please do not hesitate to contact us.