The Couple Penalty

[DocBennett]

The Conservatives have vowed to address the well documented fact that welfare recipient and low or moderate income families are better off financially if they live apart (even after accounting for the cost of running an extra home) . The two ideas mooted being a transferable tax allowance and eradicating any couple penalty in the tax credit system.

However, this is utterly fallacious and I am afraid I'm going to have to get a bit mathematical to explain!

The Tories' rhetoric about marriage is meaningless since they propose to abolish tax credits to households with income of over £50k. The approx. £20 per week you'd gain from transferable tax allowance is dwarfed by the tax credits and other payments the non-earner would receive if they separate.

I am soon to be a mother (with a mild disability) of 1 child under one, working three days a week. My beloved partner of 12 years and I have a happy 'Living Apart Together' relationship which suits us due to our professional lives - I rent in suburbia, he owns a flat in London. As we lead autonomous, unmarried lives, I would be entitled to around 12K in tax credits (including the child care, child and working and disability element) to top up my net income (after tax and pension contributions) of about £14,000 giving me a take home pay of £26,000. I would also get £1,200 housing benefit towards my HA rent.

If we move in together, under the current system, our joint income is just over the £60k threshold (and that doesn't make you well off in London by any stretch of the imagination) so we would get no tax credits and no Housing Benefit. My partner bought his flat years ago before the boom so the cost of running it is £6000 per annum all in. Subtract this from the lost tax credits to calculate the couple penalty which is £7,200.

Under the Tories as a single parent I still get the same tax credits but if we co-habit we are still entitled to nothing being well over the £50k threshold. I cannot transfer the tax allowance to the other half even if we did marry since I work part-time, so the couple penalty is still £7,200.

The 'couple penalty' is inevitable if you want to be proportionately more generous to people on lower incomes and if you assess entitlement according to household rather than individual circumstances. That is why I favour a move towards an individualised rather than 'household' tax credit system.

Before anyone takes the moral high-ground, we are discussing our options and are likely to forsake the £7k to move in together and provide a more standard family arrangement for our child.

I am simply illustrating the persistence of the couple penalty under the Tories. And surely by lowering the Tax credit threshold to £50k, a household is MORE likely to lose the credits if they live together than under the current £60k threshold?

If any tories reading this could give some clarity, this floating voater would certainly be appreciative!

although of course I'm sure someone will step in in a minute and say "noooooooo you'd be better off as you could have the whole 15k he earned........."

Doc,committing fraud is financially gaining by deception in your case knowingly gaining from a system when you know damn well (as a supposedly intelligent person in your case) that what you are doing is against the rules. It is also immoral.

I would like to see you justify yourself in court with this, as I would lay odds that there is very detailed legislation to cover this eventuality and that is very tightly written. The minute this came up an SI would have been introduced to close any loopholes in the legislation.

This is not about 'competing ideologies and moral frameworks'; it is about theft pure and simple however you attempt to dress it up. I can understand someone with very little income, caught in the benefit trap, looking at this. You, by your own admission, will be on about 60k joint income, and yet you are looking at defrauding the system. Riven and Toccata would love to be in your situation I imagine, and would not consider trying this. You should be ashamed of yourself.

haha Scary - if I had a 60k income I'd be booking my round the world cruise tickets

Taccata.. the workfare system has many valid criticisms and I don't totally support the UKIP proposals. But at least the £60 basic cash payment to all, regardless of household income and assets is a genuine (rather than the phoney tory) attempt to eradicate the couple penalty.

echo Riven - this time last year ex-H and I got back together, he'd lost his job, I was a single mum on benefits.

We could have stayed apart, on our respective benefits and been better off........but we didn't (and the rest is a whole other thread)

scaryteacher, this is not against the rules. I've a (male) friend who lives in Kilburn and his girlfriend lives in Croydon. They have a young daughter. He contacted the Inland Revenue and their advice is that as long as he doesn't contribute financially then they are not classed as a couple. If a person were to maintain a fake second address (for bills etc) but they never stayed there or kept their clothes and other belongings at their partner's home, then it would be classed as fraud but if an unmarried couple genuinely live apart then they are not counted as a couple.

it does if you're on benefits Riven - as the single person allowance is £64 a week, couples allowance is around £100 a week

So you end up about £20 a week better off if you're both on benefits.

I know our CTC dropped (quite a lot) when we moved back together as he'd worked the previous tax year)

Okay, I admit on 28K a year I would be fairly well off. I paid my student loans off a few years ago. However, I do have to pay my tuition fees for my part time doctorate and I contribute towards my youngest brother's (who is an undergraduate) uni costs which sets me back 6.5k per year. Fortunately, I finish this year and he graduates next year!

I can't really count my boyfriend's 32k income as we really do live apart and have separate finances. As I said, in all likelihood, he will sell up and move in with me at some point in the near future so there really is no need to get all stricken about dubious morality.

ironically as things are now we're costing the tax payer more now as I've moved out than if he'd moved out.

Rent Assistance would have stayed the same if he'd moved out, and they'd have had to pay HB for just a 1 bedroom place.

As I've moved out they're paying for a 3 bedroom place.

But as my name isn't on the mortgage and his is this is the way it is.

Riven, My rent and bills costs around £650 pcm. Boyfriend's domestic bills and (very small) mortgage come to just over £500 pcm.
If he sold up and moved in with me, he would save just over £6000 per year but the lost tax credits would be over £13,000 per year.

For many, cohabiting is a triumph of romance over finance!

well from next year if won't make a difference as you'll not being paying 6.5k towards your brothers HE

or you could move into his flat in London.......making a saving of nearly 8k a year.......

and hang on......your rent and bills are £650 a month.......if he moved into yours you'd be on a joint income of that much and you're complaining

His 1 bedroom bachelor pad is too small for two people and a child. My place is just about big enough.

It is true next year I will not be paying the 3k towards my brother's HE and 3.5 in my own post grad fees but when baby is born, I have agreed with my employers that after returning from maternity leave, I am moving to part-time employment (3 day office week plus a half day working from home) so my salary drops from £28K to £19.6K. Our joint income is then £51.6k. If we cohabited they count the potential income from his flat (whether he rents it out or not) pushing us over the £60k limit even though we wouldn't actually earn this in reality.

We can certainly manage financially living together and probably will but this doesn't change the fact that the couple penalty of 7k still exists.

50k with one child and bills/rent of 650pcm........

SO let me get this right.

You and your other half earn more than £60,000 and your bitching because you have to pay tax and cant claim tax credits?

You do know more than half the population has to get by on £20,000 or less?

Jeez, just think, you might be reduced to poverty and only be able to afford 4 holidays a year and designer clothes once a week....

My heart bleeds for you. Your not an MP by any chance?

I'm not complaining about my own income per se. I am arguing that any system which makes living apart financially more beneficial than choosing to live together has to be wrong and the only political party who say they're going to address this, in reality are not.

oops, my italics didn't work there!

It depends who you talk to at HMRC. If you talk to one of the people who answer the phone, they don't know the legislation and will pass any difficult queries up the line to someone who does. I know this as I have frequent dealings with HMRC about NI and taxation of income from property. If you don't rent the flat out, then they can't count any income from it.

If you are proposing that your 'beloved partner' doesn't contribute towards your child, but the state does, then again, as far as I am concerned that is fraud. You ARE in a relationship with him, with a child, irrespective of where either of you live, and to suggest otherwise is disingenuous. It's like saying I am no longer in a relationship with dh because he is at sea and I am not; or he is posted away from home and we weekend.

At least the Tories are looking at the system and trying to address the flaws, unlike Labour who write such terrible rules in the first place.

I think that coming on MN and moaning about having that level of income is not going to help your case; quite the opposite, given the level of income that many posters on here have to live on with many more children than you have at present. I'd count your blessings if I were you, and find something tangible to moan about.

The legislation and rules are very clear on the HMRC website "If you spend time with somebody but maintain a separate home you are not counted as a couple".

I never once suggested the non-resident parent would not contribute financially or otherwise.

It is a step in the right direction, as you say that "the Tories are looking at the system and trying to address the flaws, unlike Labour who write such terrible rules in the first place".

My issue is with the rules that create a couple penalty not a complaint about my own income.