Transferable tax allowance highlights the cost of inertia

They say that you can lead a horse to water but you can’t make it drink and those who work in the tax services industry are already wondering whether this old idiom will apply to married couples and civil partners when it comes to the government’s latest pre-election tax sweetener, the transferable tax allowance. This enables eligible couples to save up to £212 a year by transferring up to £1,060 of one individual’s annual personal allowance to the other. This concession, though modest, is targeted at lower earning couples who would normally be expected to save every penny they can in tax payments. However, tax services specialists at leading accountants Baker Tilly are concerned that, for whatever reason, the actual take up rate will be disappointing.


It’s not too difficult to understand why the tax services experts are so sceptical about the likely use of this tax break. Most people work within the PAYE system and know little or nothing about income tax beyond their tax code. To be honest, the majority of people aren’t really interested in the subject and, although the government will use extensive advertising to publicise the giveaway, the subject matter will doubtless go over most people’s heads.


In essence, the concession is actually quite straightforward. According to providers of personal tax services, provided neither spouse or partner is a higher or additional rate taxpayer, anyone not making full use of his or her personal allowance can register online and apply to transfer up to a maximum of £1,060 to his or her other half achieving the annual tax saving of £212. As tax services professionals point out, if the allowance goes up to £12,500 as planned, then this will of course make many more couples eligible.


The reason why the tax services industry is so sceptical about the success of this initiative, which is designed to encourage marriage and civil partnerships, is the fact that relatively few people seem to bother chasing similar sized savings via such simple measures as switching bank current accounts or energy suppliers. You could easily save around £200 a year by changing bank or energy provider but it seems that amount simply isn’t worth the effort for most people.


Registering for a partial transfer of one’s tax allowance is probably quicker and simpler than either of the aforementioned switches but tax services providers still expect a lower rate of take up than the 70% – 85% the government is hoping to achieve. If this is the case, the Treasury can look forward to spending a lot less than the annual cost of c. £495 million that it is expecting.


The problem is summarised by those in the tax services industry who remind us that nobody is going to knock on a taxpayer’s door and hand over £212 in ready cash. The maximum saving under the transferable tax allowance scheme equates to a mere £16.67 a month and you only get this by setting aside some time to go online and getting involved in something that, for most people, is totally foreign.


All this begs the question of what amount is sufficient to incentivise the average consumer or taxpayer when it comes to acting on an opt-in money saving exercise rather than relying passively on some kind of default mechanism. Overcoming inertia clearly has its price but just what is it? £400, £750 or £1,000 p.a. – who knows? Whatever the price is, the government, tax services professionals, the utility companies and the banks would no doubt all be very keen to know.


If you would like to learn more about the transferable tax allowance or any other aspect of personal taxation, the tax services team at Baker Tilly would be delighted to discuss your requirements.


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