Married couple or civil partners taxation

Dear Chancellor. I am writing to suggest that the Government consider introducing an optional system of joint income tax assessment for married couples and civil partners, allowing couples who choose to do so to be taxed by reference to their combined income and available tax bands. I am a Chartered Tax Adviser and have worked in taxation since 1981. Having seen the development of the UK personal tax system over many years, I believe there is merit in reconsidering whether complete separation of spouses' and civil partners' income for income tax purposes always produces the fairest result. Independent taxation was introduced from 6 April 1990. I am certainly not suggesting a return to the former system under which, broadly, a married woman's income was treated as her husband's for income tax purposes. Rather, I suggest a modern and entirely optional joint assessment regime, under which each individual would retain their legal and financial independence. The principle could be relatively straightforward. Where a married couple or civil partners jointly elect for the regime, their relevant taxable incomes could be aggregated and their available personal allowances and income tax rate bands considered jointly. In broad terms, the couple would therefore have the benefit of two sets of allowances and rate bands against their combined income, subject to appropriate restrictions already inherent in the tax system. The principal advantage would be fairer utilisation of tax rate bands within a household. For example, consider two married couples with identical total household income. In one household, each spouse earns £50,000. In another, one spouse earns £90,000 and the other earns £10,000. Although the two households have the same combined income of £100,000, their overall income tax liabilities can be significantly different simply because of the way in which that income is divided between them. That distinction can seem particularly arbitrary where one spouse has reduced their working hours, or stopped working altogether, in order to care for children, elderly parents or other family members. It can equally affect older couples where one spouse has a substantial pension or investment income while the other has relatively little income. An optional joint assessment system could therefore have a number of merits: (a) Fairness between households – couples with similar overall household resources could bear a more comparable income tax burden, irrespective of which partner happens to earn the income. (b) Fuller and fairer use of tax bands – unused basic-rate capacity of a low-income spouse or civil partner would not simply be lost while the other partner pays tax at higher rates. (c) Recognition of the economic reality of many families – many married couples and civil partners operate their household finances jointly, even though the tax system treats them almost entirely as separate economic units. (d) Recognition of unpaid caring responsibilities – the present system can disadvantage a household where one partner sacrifices earning capacity to look after children or other family members. (e) Choice and individual independence – critically, the system should be optional. Couples who prefer independent taxation and separate tax filings should remain completely free to continue on that basis. I appreciate that such a proposal would have an Exchequer cost and would require careful consideration of anti-avoidance provisions, the interaction with personal allowance tapering, savings and dividend income, pension contributions and other aspects of the tax system. However, these are matters of detailed design rather than objections to the underlying principle. One possible approach would be for the election to apply for a complete tax year and require the consent of both spouses or civil partners. Each individual could continue to have their own tax reference and remain individually responsible for their own tax affairs, while a computational mechanism would permit the couple's allowances and rate bands to be utilised jointly. There is already some recognition within the tax system that marriage can justify limited transferability through the Marriage Allowance. My suggestion is that consideration be given to extending that principle in a much more coherent manner, particularly in relation to unused basic-rate tax bands. At a time when the Government is considering both economic growth and simplification of the tax system, I believe an optional joint taxation election merits serious examination. It could provide a fairer outcome for many ordinary families without removing the important principle of independent taxation for anyone who wishes to retain it. I would be grateful if HM Treasury could consider this suggestion as part of its future review of personal taxation and fiscal policy. Jay Doshi.