ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is adverse to some taxpayers in principle and in practice. But the numbers affected and the amounts involved are likely to be small. Change 8: Married couple’s allowance: calculation of income threshold: section 58 and Schedule 1 (section 256A of ICTA)
This change corrects an omission in the amendments made by the Tax and Civil Partnership Regulations 2005 (SI 2005/3229).
Paragraph 52 of the Regulations inserted section 257AB of ICTA, which applies to marriages and civil partnerships entered into on or after 5 December 2005. Section 257A of ICTA continues to apply where the marriage took place before that date, unless an election is made for the new rules to apply.
The two provisions are intended to operate in the same way except that under the new provision it is the higher income spouse or civil partner rather than the husband who is entitled to claim. Both provisions apply only where at least one party to the marriage or civil partnership was born before 6 April 1935.
The amount of the married couple’s allowance is reduced from its maximum level when the claimant’s income exceeds a certain threshold. In this Act that threshold is called “adjusted net income” and is defined in section 58. A corresponding provision is inserted into ICTA by Schedule 1 to this Act to cater for claimants under that Act.
In calculating the claimant’s income for this purpose, section 835(5) of ICTA provides that deductions under Chapter 1 of Part 7 of ICTA are not to be taken into for the purposes of section 257A(5). Section 835(5) should have been amended so that it applied also for the purposes of section 257AB(4), to keep the rules for the two provisions in step, but this was overlooked. This change corrects this, so that section 58 and section 256A of ICTA apply in the calculation of married couple’s allowance for all marriages and civil partnerships whenever they were entered into.
It may be noted that corresponding changes were made to other legislation by adding references to section 257AB(4) to existing references to section 257A(5). Regulation 104 inserted such a reference in section 25(9A) FA 1990 and regulation 177 inserted such a reference in section 192(5) FA 2004. This reinforces the view that there was never any intention to have any difference in treatment as regards the measure of income between the two married couple’s allowance provisions.
The change is taxpayer-adverse in that when calculating whether the taper applies to reduce entitlement to married couple’s allowance under section 257AB, it is required that income is determined before the deduction of personal allowance (and if appropriate blind person’s allowance and certain life insurance related reliefs). But making this change will bring the law into line with what it was understood was being achieved when the Tax and Civil Partnership Regulations were made.
The change applies only to couples where the rules relating to marriages or civil partnerships entered into after 5 December 2005 apply, where one individual was born before 6 April 1935, and where the claimant’s income is in the range of income to which the tapering rules in section 46(4) apply. The number of people potentially affected is considered likely to be small, as is the tax effect in any individual case.