In Defence of Liberty

Driven by data; ridden with liberty.

Marriage Tax Allowances

Prime Minister David Cameron has announced plans for a marriage break for income taxpayers. Married couples can transfer £1,000 of their personal allowance if one spouse is a basic rate (20%) taxpayer and the other earns under the personal allowance threshold. This proposal is expected to include four million married couples and 15,000 civil partners. David Cameron said: “There is something special about marriage: it’s a declaration of commitment, responsibility and stability that helps bind families.”

Marriage may be a declaration, but the commonly-cited effect of marriage on child outcomes is probably just correlation. Stable couples may get married and have children. The Institute for Fiscal Studies (IFS) concluded that: “We can find no strong evidence that marriage leads to better cognitive or social outcomes for children that cohabitation.”

Income tax is already complicated, congealing with multiple government expenditures such as child benefits. The IFS calculated that higher earners with four children now faced an effective marginal tax rate of over 70%. The personal allowance – the earned income that is zero-rated for tax – is withdrawn between annual incomes of £100,000 and £118,800, enforcing a 60% marginal rate.

Our present income tax system neither simple nor progressive. (Source: IFS)

Our present income tax system neither simple nor progressive. (Source: IFS)

Other taxes are also strange and byzantine. Stamp duty is applied to the total value of a property, unlike income tax, which is applied to marginal values. As Allister Heath of City AM points out, a residential property sold at £250,000 will be taxed at 1%, or £2,500, whilst the same property sold at £250,001 will be taxed at 3% – about £7,500.

Our present tax system erodes productive activity. The Federation of Small Businesses said minor firms spend 12 days a year on tax matters. The government should be moving towards simplifying and lowering taxes. The tax burden can be reduced in other ways, such as cutting taxes on domestic energy use.

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2 comments on “Marriage Tax Allowances

  1. Jonathan Bagley
    October 31, 2013

    Should also be noted that households with two children on an income of 15 to 20k also have marginal tax rates over 70% due to tax credits.

    • Anthony Masters
      October 31, 2013

      Yes, the coagulation between taxes and tax credits creates some formidable marginal rates.

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This entry was posted on October 30, 2013 by in National Politics and tagged , .
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