ACCA ATX ^UK Syllabus A1. Income tax - Transferable Personal Allowance - Notes ^{2 / 4}

For an unused personal allowance to be transferrable between spouses/civil partners:

One individual must be a non-taxpayer and have unused P.A.

The other individual must be a basic rate tax payer.

• The maximum amount that can be transferred from the non taxpaying spouse is: £1,260. This reduces their available personal allowance to £11,310 (£12,570-£1,260)

• (This must be available to the non-taxpayer to actually transfer)

• This transfer will be given in the form of a 20% tax credit to the spouse who is taking it: 20% * (£1,260) = £252 is the maximum tax credit that can be given to the spouse who is paying tax.

• Thus, this amount will be deducted from their income tax liability to reduce their income tax payable. 

  The election to transfer must be made within 4 years of the end of the tax year to which it should apply, and remains automatically effective until it is withdrawn.

Illustration:

A husband has trading income of £30,000. His wife only has employment income of £8,000.

• Does she have unused personal allowance? YES

• How much of her unused personal allowance can she transfer to her husband? £1,260

• How will this reduce his income tax payable? TAX REDUCER OF £252 (£1,260*20%)

Solution: