HMRC may need to consider what constitutes a couple
For those who are in a long term relationship but manage to exist without the benefit of a marriage or civil partnership, the tax system’s definition of a ‘couple’ could be a source of frustration. Whilst there are plenty of people who believe that their relationships are just as committed as a marriage, the tax system has failed to keep up with more modern definitions of a ‘couple’, and the department’s failure to provide a consistent definition is a constant source of confusion.
The Low Income Tax Reforms Group believes that this is just one of the many ways in which the tax system has failed to keep up with modern life. The group has made it clear that they believe HMRC should come up with a definition of a couple which is ‘single, consistent and clear’ to minimise the chances of unfairness to couples who are not married or in a civil partnership.
The Marriage Allowance is designed to help couples in the same household to share their tax-free personal allowance and could help contractors on low incomes to reduce their tax bills, but it only applies to those who have legal proof of their marriage or civil partnership. There are a number of benefits aimed at couples which include those who are not married or in a civil partnership, but the MCA is not one of them, which means that HMRC’s definition of what constitutes a couple can vary from one section of the tax code to the next.
Even for those who are married, there are confusing aspects to the way that the MCA is applied. For example, when a couple gets married, the allowance is only available for a proportion of the year in which the marriage takes place, whereas if a couple divorces, they are allowed to claim the allowance for the entire year of separation. This kind of issue is one of the reasons why the tax laws relating to couples need to be reviewed and possibly completely overhauled.
The LITRG believes that the tax authority guidelines are almost impossible to follow for the average lay-person, and that even the Gov.UK website fails to provide more than ‘scant’ information about how the rules apply. This means that there could be significant differences in the way that couples are applying the rules, whether that’s disagreements over dates, the length of time that assets can be transferred between two parties or the length of time that transfers will be exempt from inheritance tax. Issues such as these, which could have a big impact on the way couples complete their tax returns, should be resolve as soon as possible in order to limit the level of confusion caused by HMRC’s own rules.
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