Request
What is the rationale behind the way that the allowances are structured regarding marginal rate relief? I would specifically like to know why the married couple’s allowance is less than two times the single person’s allowance. For example, the 2014 single persons allowance was £14000; the married allowance was £22400. Why was the married allowance not simply £28000 (2x£14000)?
Response
The concept of marginal relief was introduced in 1963 to alleviate the burden of tax for low/middle earners. Please find attached a spreadsheet that outlines the history of the exemption thresholds available within the marginal relief system since 1963. This information is presented in two ways:
1. A comparison between the exemption threshold for single persons and for married couples.
2. A comparison between the exemption threshold for single persons and the overall exemption threshold available to a married couple in circumstances where the couple were entitled to claim full wife’s earned income allowance (available within the marginal relief system since 1987).
This information indicates the following:
(a) When originally introduced the exemption threshold available to single persons and married couples was identical (i.e. both were £420 per annum). Having searched the States records the only document available in respect of this decision is a minute of the Finance Committee dated 25 September 1963 (attached) which states:
“The Committee, having discussed with the Comptroller of Income Tax his letter, reference Est.45A/GHH, in regard to income tax allowances and liability on small income, approved the proposals contained therein and directed him to discuss with the Law Draftsman the legislation required to put these proposals into effect.”
Unfortunately we are unable to find a copy of the Comptroller of Income Tax’s letter referenced in the minute.
(b) This position was maintained until 1970 when the exemption threshold available to married couples was increased so that it was more than the exemption threshold available to single persons (married couples: £900; single persons: £675). We attach copies of the relevant minutes of the Finance and Economics Committee dated 1st July 1970, 7th October 1970 and 28th October 1970 and correspondence from the Comptroller of Income Tax. In the memo dated 17 June 1970 the Comptroller of Income Tax notes:
“It may be considered … that if a single individual is exempt at £600, married persons should be exempt at higher ranges. It would be possible to achieve this quite simply and
at a comparatively low cost by providing that individuals entitled to the single allowance should be exempt at £600 (or such higher figure as may be considered appropriate) and individuals entitled to the married allowance should be exempt at, say, £900.”
No further rationale for why £900 was determined is provided.
(c) This position of the exemption threshold available to married couples exceeding the exemption threshold available to single persons has been maintained to date. The ratio between the exemption thresholds available to single persons and to married couples has fallen from 75% in 1970 to approximately 62% in 2015.
(d) Since 1987, provided that they are entitled to claim the allowance, married couples have been able to increase their exemption threshold by the wife’s earned income allowance. When originally introduced in 1987 this resulted in the exemption threshold available to married couples entitled to the full wife’s earned income allowance of £2,450 being exactly double the exemption threshold available to single persons.
We attach an extract from the Budget Statement dated December 1986 which states: “We are also proposing changes to improve considerably a married woman’s earned income allowance as this appeared extremely unfair as against a single working person.”
We also attach an extract from the minutes of the Finance and Economics Committee dated 2 September 1986 which indicates that the changes were made on the recommendation of the Comptroller of Income Tax; unfortunately we have been unable to find a copy of the Comptroller of Income Tax’s paper dated 21 August 1986.
(e) The position of the exemption threshold available to married couples entitled to the full wife’s earned income allowance being double the exemption threshold available to single persons was maintained until 2003. Following changes made in the 2004 Budget (see attached) by way of an amendment by Senator Edward Philip Vibert the exemption thresholds available to married couples and single persons in 2003 were increased, but there was no corresponding increase in the wife’s earned income allowance.
Subsequent Budget policy has followed this approach in that the exemption thresholds available to married couples and single persons have been increased periodically by the same percentage increase (subject to rounding) whereas the wife’s earned income allowance has been frozen at £4,500. This approach to exemption thresholds and allowances was most recently stated in the 2015 Budget Statement. See:
Download budget statement 2015 (size 2.96mb)
“The practice in recent years has been to increase the exemption thresholds by reference to the lower of the RPI figure and the annual increase in earnings…It is proposed that for 2015 the exemption thresholds are increased by 1.7% (the March 2014 RPI figure).”
“The Minister proposes that the income tax allowances are unchanged for the 2015 year of assessment…The Single Parent Allowance and the Wife’s Earned Income Allowance have not changed since 1999.”
The impact of this policy is to increase the ratio between the exemption threshold available to single persons and the exemption threshold available to married couples entitled to the full wife’s earned income allowance (this ratio has reached 52% in 2015).
The Treasury is currently looking at the issue of independent taxation and published a feasibility report in October 2013. See:
Download independent taxation report (size 3.94mb)
In a system of independent taxation each individual is treated as a taxpayer in their own right and subject to income tax based on their own income and their own entitlement to allowances. In that feasibility report the former Minister for Treasury and Resources, Senator Philip Ozouf, committed to the principle of independent taxation whilst acknowledging that “…it is vital that the logistical, administrative and financial impact of this change is managed correctly and makes the tax system simpler.”
Additional documents provided with the response to this Freedom of Information request:
Download F and E Acts re tax allowances on small incomes (486kb)
Download Comptroller correspondence on tax allowance on small incomes (size 333kb)
Download copy of single married exemption limits (size 18kb)
Download extract of finance minutes 020986 (size 16.9kb)
Download extract from 1986 budget (size 333kb)
