In a new report1, the Low Incomes Tax Reform Group (LITRG) has called for greater clarity around how couples are dealt with in the tax and tax credits systems.
The charity is calling for:
- Improved guidance from both HMRC and the DWP;
- A wide-ranging review of legislation and practice to achieve consistency in the definition and treatment of couples for different tax and benefit purposes;
- The extension of bereavement support to parents who lose a de facto spouse
Anthony Thomas, LITRG Chairman, said:
“Society has changed dramatically over the last few decades. There are now many couples who are not married (nor in a civil partnership), but whose relationships are equally committed. Unfortunately our tax and benefits systems have struggled to keep up with this change.
“Couples are faced with a high degree of complexity in the tax system. Take, for example, the case of a married couple recently separated. There are separate rules that apply to them for eligibility for the new marriage allowance; how long they can continue to transfer assets between them free of capital gains tax and how long transfers between them are exempt from inheritance tax. It may also be difficult for them to “prove” a date of separation to determine when they could make separate claims for tax credits.
“Complexity can lead to mistakes on claims forms and this can have devastating financial consequences. Although two individuals may be clear as to whether or not they are a couple, the authorities may not agree with them and may decide to investigate their status, a compliance nightmare which is exacerbated by the inadequacy of official information accessible to ordinary taxpayers.
“We believe it is possible to have some formal ‘registration’ process with HMRC and the DWP to make an official declaration that a couple has been formed (or separated) to provide some certainty for couples who have made a clear decision to enter into (or separate from) a committed relationship with each other, without forming a marriage or civil partnership.2
“We highlight bereavement support as an area of real concern. The non-availability of bereavement support for unmarried or non-civil partner couples on the death of their partner is deeply unfair, affecting, as it does, the children of the couple who have no control over their parents’ marital status. This should be rectified by extending the benefit to those parents who lose a de facto spouse.
“The tax position for couples is already confusing and disjointed; on future changes in legislation, we recommend that the Government remains conscious of avoiding further complexity.”
Notes for editors
1. The report of the Low Incomes Tax Reform Group, Couples in the tax and related welfare systems – a call for greater clarity, can be read in full here.
2. To be clear, our proposed ‘registration’ process for a couple to declare their status is based on a couple declaring their status for the purposes of the law as it currently stands, rather than for, say, an unmarried couple to be treated as if they were married.More Articles by Chartered Institute of Taxation (CIOT) ...