ATXP6 UK
Syllabus A1. Income tax A1a. The comprehensive computation of taxable income and income tax liability

A1a. Transferable Personal Allowance

Syllabus A1a)

B5 The comprehensive computation of taxable income and the income tax liability

What is a transferable P.A.?

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: £1,190

  • (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% * (£1,190) = £238 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within 4 years of the end of the tax year to which it should apply, and remains automatically effective until it is withdrawn.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?

  • How much of her unused personal allowance can she transfer to her husband?

  • How will this reduce his income tax payable?

Solution:

Wife
Employment income £8,000
Personal allowance  (11,850)
Taxable income Nil 
Unused P.A. = £3,850 – the maximum that can be transferred is £1,190.
Husband
Trading income £30,000
Personal allowance (£11,850)
Taxable income £18,150
I.T. liability = £18,150 * 20% = £3,630
Tax credit of unused P.A. (£238)
I.T. payable     £3,392