H.M. TREASURY Notes on Clauses

EXPLANATORY NOTE
CLAUSE 29: FURTHER PROVISIONS ABOUT MARRIED COUPLE'S ALLOWANCE

SUMMARY

1. This clause makes a consequential amendment to the legislation dealing with transfers of married couple's allowance (MCA) between spouses. ItIt provides that the amount of MCA that can be transferred to a wife during the year of assessment is limited to the minimum amount of MCA for the year. This clause also provides that the new minimum level of MCA will be subject to statutory indexation. It also abolishes the transitional provisions introduced to shield some people whose allowances would otherwise have been reduced when Independent Taxation was introduced in 1990.

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DETAILS OF THE CLAUSE

2. Sub-section (1)(a) amends section 257BA of the Income and Corporation Taxes Act (ICTA) 1988, which contains provisions dealing with elections to transfer MCA between spouses. It provides that the amount that may be transferred between spouses under section 257BA is either half or all of the new minimum amount of MCA for the year specified by section 257A(5A) of ICTA 1988. (Section 257A(5A) will be inserted by clause 28(7) of this Bill.) This change will have effect for the year 1999-00 and subsequent years of assessment. It makes no practical difference in 1999-00.

3. Sub-section (1)(b) makes a minor consequential amendment, following from the changes introduced by clause 28 of this Bill, and will have effect for the year 2000-01 and subsequent years of assessment.

4. Sub-section (1)(c) corrects the terminology at section 257BA(9) of ICTA 1988 by replacing 'deduction' with 'income tax reduction', and will have effect for the year 1999-00 and subsequent years of assessment.

5. Sub-section (2) repeals sections 257D to 257F of ICTA 1988 with effect for the year 2000-01 and subsequent years of assessment. These sections provide for the transitional allowances introduced to shield some people whose allowances would otherwise have been reduced when Independent Taxation was introduced in 1990.

6. Sub-sections (3) and (4) specify the years for which these changes will have effect.

67 Sub-section (5) provides that statutory indexation shall apply to the new minimum level of MCA, at section 257A(5A) of ICTA 1988 (to be inserted by clause 28(7) of this Bill), but only for the year 2000-01 and subsequent years of assessment.

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BACKGROUND

8. Married couple's allowance is currently available to a couple in one of three amounts, depending on the age of spouses. For couples where neither spouse is aged 65 or more in the year of assessment, the basic MCA is available. For couples where one or both spouses is aged 65-74 or 75 or more in the year of assessment, enhanced MCA is available. The enhanced allowances due because of age are gradually tapered away from claimants who have income above a specified income limit. Currently, they cannot be reduced below the level of the basic MCA available to people aged under 65.

9. MCA must be claimed by the husband. Once he has made a claim, his wife can elect to receive half the basic allowance as of right, or the couple can jointly elect to transfer the whole of the basic allowance to her. Any extra amount due because of age must go to the husband unless he does not have sufficient income to use it.

10. Currently, section 257A(1) of ICTA 1988, which sets the level of MCA available to people under 65, also governs the amount of MCA which can be transferred between spouses. From April 2000, however, MCA will no longer be available to people aged under 65, and section 257A(1) of ICTA 1988 will be repealed. Clause 28(7) of this Bill introduces a new minimum level for the MCA, and this clause makes a consequential amendment, which provides that it is this new minimum MCA which can be transferred between spouses. This clause also applies statutory indexation to the new minimum MCA.

11. The transitional reliefs associated with the introduction of independent taxation are being repealed. By 2000-01, they will apply only to a very small number of people because of increases in the present income tax reliefs since 1990-91. The provisions for these transitional reliefs are at sections 257D to 257F of ICTA 1988:

Section 257D allowed relief to cushion the effect of the introduction of Independent Taxation in 1990-91 in cases where a man’s own income was less than his allowances so that some of those allowances had effectively been set against his wife’s income.

Section 257E prevented reductions in Personal Allowance which would otherwise have resulted from of the introduction of Independent Taxation in 1990-91 in cases where husbands had had enhanced levels of allowances because their wives were 65 or older. It became obsolete in 1996-97 when the basic level of Personal Allowance overtook the maximum age-related level applicable for 1989-90.

Section 257F allowed relief to cushion the effect of the introduction of Independent Taxation in 1990-91 on husbands who were separated from their wives before 6 April 1990 but continued to maintain them.