I am aged 72 and a basic rate taxpayer now as I’ve been working part-time since I reached retirement age. My wife is retired and receives a state pension but has no other income so doesn’t pay tax. We had sufficient income for our needs so I deferred taking my state pension but I plan to give up work in a couple of months. I have a private pension so expect to draw on that and my state pension, so will pay tax on my pension income. We have no other sources of income. Can I somehow transfer some of my private pension income to my wife so that we pay less tax overall?
Carl Lamb responds
You are not allowed to transfer your pension benefits to your wife, I’m afraid: your pension savings are personal to you. The only time this might be possible would be if you were to divorce or if you died.
However, there is a way of saving the tax you pay as a couple. You can take advantage of a tax concession known as the Marriage Allowance. This involves transferring £1,250 of your wife’s Personal Allowance to you, on the understanding that she is a non-taxpayer or has an income of less than the Personal Allowance (currently £12,500) and you are a basic rate taxpayer. The allowance can only be applied if you are a basic rate taxpayer, not if you are an additional or higher rate taxpayer.
The result of transferring the allowance is that your wife would have a lower Personal Allowance and you would have a higher one and so pay less tax. To do this your wife – as the non-taxpayer giving away her allowance – needs to apply to HMRC. This can be done online and your new Personal Allowances will be applied through new tax codes. This can take a couple of months or so for HMRC to organise, but if you apply before 6 April 2021 the change will be applied from the start of the tax year on 6 April 2020.
The good news is that you can claim for earlier tax years too, currently back to 6 April 2016, so if your wife was a non-taxpayer for any of those tax years, you may be entitled to claim for the allowance to be backdated. You can find out more about the Marriage Allowance on the Government website at www.gov.uk/marriage-allowance.
Any opinions expressed in this article do not constitute advice. They assume the 2020/21 tax year and may be subject to change.