Home Finance Bill bombshell over tax thresholds change hitting 100,000 couples – see if...

Bill bombshell over tax thresholds change hitting 100,000 couples – see if you're affected

More than 100,000 married couples face shock bills because of the Government’s decision to freeze tax thresholds.

The marriage allowance, which was introduced by former Conservative chancellor George Osborne, allowed a higher-earning spouse to transfer £1,260 (10 percent) of their personal allowance to their partner.

However a freeze on tax thresholds means that an estimated 127,680 are set to lose the benefit of this scheme.

Historically, the regime allowed a basic-rate taxpayer to receive a tax credit equivalent to £252 which could be transferred to their low paid partner.

But the ability to take advantage of this scheme is restricted to couples where one of the couple is a basic rate taxpayer and the other earns less than the personal allowance, currently £12,570.

A decision to freeze income tax thresholds until 2028-29, means 3 million workers will be pulled into the higher rate – 40 percent – tax bracket.

As a result, close to 128,000 couples will lose the right to claim the allowance because one of them will now be classified as a higher rate taxpayer.

Sean McCann, of financial advice firm NFU Mutual, which carried out the analysis, said: “Crossing the threshold into higher rate tax once your income exceeds £50,270 can bring some unwelcome tax surprises.

“Exceeding the threshold by only one pound means that you lose the ability to claim the allowance.”

It is predicted that pensioners could be among the worst hit as they may have savings interest that drags them over the higher rate threshold or takes their annual income above the personal allowance.

The loss of the marriage allowance is the latest example of how the freeze of tax thresholds and other changes to the tax regime have bit Britons in the pocket.

For example, the number of people hit with tax on their savings interest has jumped by 1 million in a single year, according to figures obtained by stockbroker AJ Bell in a freedom of information request.

Basic-rate taxpayers can earn up to £1,000 in interest on their savings before having to pay tax at their marginal rate. This drops to £500 once they become a higher-rate taxpayer.

This means someone with £20,000 outside of a tax exempt wrapper, such as an ISA, in an account paying 5 per cent interest, would now owe £200 in tax.

Previous research has found that 900,000 pensioners could face surprise tax bills due to the state pension rising while the personal allowance remains frozen.

The state pension has this April risen 8.5pc to reach £11,502 annually. Once income from other sources, such as returns on investments and savings, is taken into account pensioners can soon find they are over the basic rate threshold for paying tax of £12,571.

The Government has previously defended its treatment of pensioners, pointing to its commitment to the triple lock which have resulted in a series of increases to the state pension.


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