Help for families has sting in tail

The new married couples tax break will let spouses transfer 1,000 pounds of their income tax personal allowance to their partner, bringing 200 pounds in tax relief

The allowance, which was widely trailed, was among the chief giveaways in the measures set out by Chancellor George Osborne last Thursday. However, the controversial tax break comes with restrictions and complications that could mean few couples will benefit, experts say.

The new married couples tax break will allow spouses to transfer £1,000 of their income tax personal allowance to their partner, a move worth £200 in tax relief. The relief, available from 2015, will be on offer to couples where neither is in the higher rate tax band and one is below the personal allowance threshold (likely to be about £10,000 in 2015).

But experts warn that the practicalities around the move will mean that few will benefit and some will lose out. The allowance will affect benefits entitlements, meaning some couples will be out of pocket where transferring the allowance increases the household’s take-home pay.

And while the government claims that up to four million people will benefit, the relief will also come with complexities that will deter many from taking it up, according to Peter Young, tax partner at Johnston Carmichael in Edinburgh.

“Bearing in mind this is a transferable allowance worth £200, I suspect that many won’t bother to claim even if they could. Others will not be aware that they can claim and those that can may have to go through hoops which make the process not worthwhile in the end,” said Young.

Accountants have warned that the tax break is “fraught with practical difficulties, involving a cap, a transfer and a taper”. Some claimants will be dragged into the self-assessment system for the first time if they are to benefit from the allowance, introducing extra complexity and raising the prospect of tax fines.

“We are yet to see the details of how the transferable allowance will be administered and I do foresee potential problems here,” said Young. “It will be a non-earning spouse who will transfer allowance to the earning spouse. The administration involved may put people off, particularly if it draws them into self-assessment.

“It’s heralded as a big  announcement, but will not deliver a great deal of benefit – representing, at best, a little under £4 per week.”

There are similar concerns around changes to child benefit introduced earlier this year. It is now withdrawn through self-assessment from families where one parent has taxable income above £50,000. An estimated 165,000 parents face tax penalties after missing an October deadline to register their child benefit payments with HM Revenue & Customs.

Employed taxpayers are unlikely to be in the self-assessment system, pointed out Stefanie Stapleton, tax adviser at Blick Rothenberg chartered accountants, begging the question as to how the allowance will work.

“The only answer seems to be via PAYE, with the additional £1,000 being allocated to the higher-earning spouse’s tax code. This therefore depends on the individuals being aware that they qualify for the measure and also knowing first where to find HMRC’s phone number. They would then have to call and have their tax code amended (it is also possible they will have never even received a tax code before).

“After all that, it works out as an extra £16 income a month.”

Low expectations around the married couples allowance reinforce the impression of an Autumn Statement with little to offer families. While Osborne also announced that tax-free childcare vouchers will be launched in autumn 2015, the Institute for Public Policy Research said the relief will be rapidly outpaced by  rising childcare costs.

Lucy Metcalf, head of family law at Tods Murray Solicitors in Edinburgh, said: “The introduction of tax-free childcare vouchers is to be welcomed. However, the scope of the  policy will be limited, as only children up to the age of five qualify, and with the UK having some of the highest childcare costs in the world, this continues to be a challenge for family budgets.”