Should I stop giving my husband 10% of my tax allowance after state pension rise?

If the government raises the state pension by 10 percent in April, I will start paying taxes, as I now give 10 percent of my tax credit to my husband who earns above the threshold.

Would it be cost effective to continue to do this, as if I were to stop I would still be below the threshold?

I currently have a state pension of £730, paid every four weeks, giving an annual income of £9,490, and a petty civil service pension of £115 a month, totaling £1,380 a year, making a total of £10,870.

This could ostensibly add up to almost £12,000 (depending on any increase in cost of living I get from the civil service).

While this would still be below the tax liability threshold, if I continued to give my husband the 10 percent, I would be liable to tax, albeit on a small amount.

Can you please advise the best way forward? I’m sure there will be others in my situation who would welcome advice on this dilemma.

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Steve Webb replies: A combination of frozen tax-free allowances and sharp inflation-related increases in state pensions (and other pensions) could mean that more and more people are faced with the same dilemma as you.

Let me explain what’s going on here and talk you through your options.

As you know, the standard personal allowance is £12,570 and this amount will be frozen until at least 2027/28.

Your state pension plus civil servant’s pension is well below this this year, so you do not pay any income tax.

I see you the regulation ‘marriage benefit’ that allows a non-taxpayer like you to transfer an unused 10 percent of your personal allowance to a spouse or civil partner who pays tax at the base rate.

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This year you gave away £1,260 of your allowance to your husband, which helps to reduce his tax bill, potentially saving him 20 per cent of £1,260 or £252.

This allows you to receive £11,310 tax-free income this year, and this is still above your retirement income of £10,870. It therefore makes perfect sense to use this scheme.

Next year, as you say, it will be different.

The state pension will increase by 10.1 percent in April and I assume that your civil servants’ pension will increase by the same amount.

Applying a 10.1 per cent increase to your total income gives you £11,968. This is less than the standard tax-free allowance of £12,570, but above the amount you’re left with of £11,310 when you’ve transferred £1,260 to your spouse.

At this point, you should consider whether you want to continue with the spousal benefit or not.

In simple terms, as long as there is a *some* gap between your total taxable income and the full compensation of £12,570, you as a couple will benefit from going through with the transfer.

Although you will be paying income tax for the first time yourself, the amount you pay will be less than the amount your husband saves.

This is because your ‘other’ personal allowance is well spent.

In short, using marriage benefit means that you as a couple still benefit more than if you had not done so, but your personal income tax assessment will increase.

If and when your total income exceeds £12,570 (which could very well happen in 2027/28) you will no longer be eligible for the Marriage Benefit as it requires you to have an income below the full personal allowance.

Finally, you should bear in mind that the marriage benefit continues automatically, unless you cancel it or unless you have an income in excess of the full personal allowance.

In your situation, this means that unless you specifically cancel the current arrangement, things will continue as they are.

In 2023/24 you will pay a small amount of income tax, but your husband will receive the full payment of your transferred allowance.