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Welcome to the European Tax Blog.

Some of Europe's brightest legal minds look at the tax issues across Europe which could impact multinational businesses.

| 2 minutes read

What does independent taxation mean?

The Labour Party has been in trouble this week due to its promise to scrap the UK tax marriage allowance. This allowance was introduced in 2015 and enables a non-working spouse or civil partner to transfer £1,250 of their tax personal allowance to their higher earning partner.  The benefit is only worth up to £250 a year and is not available to higher earners.  Its abolition would therefore affect only lower earning couples.

Many feminists (including me) object to the marriage allowance because it cuts across the principle of independent taxation.  It is also a benefit paid to the higher earner in the partnership (often a man) that potentially acts as a financial disincentive to the lower earner (often a woman) to work and so to increase their income.

It seems amazing to remember that full independent taxation for married women was not introduced in the UK until 1990. Before then, the underlying principle was that a married woman’s income was simply part of her husband’s income. In fact, in the Income Tax Act 1918, married women were categorised as incapacitated persons, alongside infants and the insane, and this reference to married women was not removed until 1950.

The marriage allowance is not the only aspect of the UK tax system that cuts across the principle of independent taxation.  There are other aspects of the tax system which might have a similar impact on behaviour – whether that be to encourage or discourage marriage/civil partnership.  For example:

  • child benefit – usually paid to the mother – is clawed back via the high income child benefit charge if the recipient or their partner earns more than £50,000 pa. This is therefore a situation – contrary to the principle of independent taxation – where income paid to one partner is taxed in the hands of their spouse. A non-working partner (often a woman) might also be persuaded not to claim child benefit, even though this can potentially have adverse consequences on the claimant’s national insurance contribution record for future pension entitlement.
  • If two single people want to get married and buy a home, they will be subject to the higher SDLT charge for the purchase of an additional property if one of them already owns a property – remain single and they could each own a property without paying the additional charge.
  •  Similarly, two single people can potentially have two principal private residences between them for CGT purposes, whereas a married couple can only have one.
  • Married couples may transfer assets between them to utilise tax allowances such as the CGT annual exempt amount. 
  • Similarly inheritance nil rate bands can be pooled by married couples.

There are no simple answers to any of this, but surely we should at least be striving towards a tax system that is agnostic to the type of personal relationship that taxpayers choose to enter into?

This post was authored by Sara Luder. 

This is therefore a situation – contrary to the principle of independent taxation – where income paid to one partner is taxed in the hands of their spouse.


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