Tory marriage tax sweetener could make you poorer

If David Cameron thought a tax break for married couples would give them a financial boost, the Institute of Chartered Accountants (ICAEW) disagrees - very strongly.

In fact, the ICAEW says many couples on low incomes claiming the Coalition's new £200 'married' tax break could lose benefits as a result, according to new research. How serious are the accusations?>

'One hand gives, the other takes'

Theoretically, the tax break could be worth up to £700m. However the ICAEW thinks the tax sweetener could mean that those taking the new Universal Credit payment may be no better off consequently.

The basic rate of tax is 20%, and applies to income up to £32,010 in excess of the personal allowance. So for 2013/14, a person would have to earn less than £41,451 to be eligible.

"Transferring the allowance will mean the couple's take-home pay will rise," says the ICAEW. "This is likely to affect their benefits entitlement, and their UC could go down as a result – giving with one hand and taking with the other."

Too complex

It adds: "This proposal hardly demonstrates a commitment to tax simplification. In fact, it is fraught with practical difficulties, involving a cap, a transfer and a taper. It is too complex, mixing income tax, which is based on individuals, with an allowance requiring marriage."

Tax partner at accountants HW Fisher, Jamie Morrison, told AOL Money that the Tory changes were a case of "blind Conservative policy on the practicalities. How are people going to claim the transferrable allowance?"

"You might have someone," he says, "self-employed who will have to file a tax return. But where people are both employed, how would it work? There's an additional burden on an employer to administer it."

You could also have a situation - the most worrying says Morrison - "where one party in the marriage doesn't use all their allowance and the other party trips into the high tax rate and, if they claim the allowance, have to pay it back."

'Patronising drivel'

The allowance is a major plank of George Osborne's 2013 Autumn Statement, delivered this Thursday. Nick Clegg though has branded the new tax as "patronising drivel that belongs in the Edwardian age."

"If you have got hundreds of millions of pounds to spend on tax breaks like that," Clegg has said in the past, "then I would much rather spend it on all working families to improve the tax breaks we are going to give them on childcare, for instance."

'Hand picking couples'

He added: "This desire of the Conservative Party to hand-pick couples through the tax system who conform to their image of how you should conduct your life, I don't think it's fair."

ICAEW Case study

Joanne and Mark are married. Joanne earns £4,500 a year as a waitress, Mark earns £11,000 a year as a cleaner. Because Joanne doesn't use all of her personal allowance, she will be able to transfer up to £1,000 of her allowance to Mark.

In a year, his take home pay will increase by £200 as he now pays £200 less income tax. But Universal Credit is reduced as net income rises. For every £1 extra earned, the UC cash benefit is reduced by 65p. Joanne and Mark could find they are only £70 better off at the end of the year, not £200 better off.

Tax tricks to improve your wealth
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Tory marriage tax sweetener could make you poorer

If you wear a uniform of any kind to work and have to wash, repair or replace it yourself, you may be able to reclaim tax paid over the last four years. For some people, this could mean a windfall worth hundreds of pounds

The interest you receive on savings accounts (with the exception of cash Isas) is automatically taxed at a rate of 20%.

Higher-rate taxpayers therefore tend to owe money on the interest they are paid throughout the year. If, however, you are on a low income or not earning at all, you should be able to claim all or some of the tax deducted back

You can apply for a refund of vehicle tax if you are the current registered keeper or were the last registered keeper of your vehicle that no longer needs a tax disc

If you pay tax on a company, personal or State Pension through PAYE (the system employers use to deduct tax from your wages), you may well end up overpaying

There is a limit to the amount you need to pay in NI, whether or not you work for an employer.

Instances in which you may find that you have overpaid include if you work two or more jobs and earn more than £817 a week and if you move from self-employment to employment, but continue to pay Class 2 National Insurance contributions

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