I would like to check my understanding of how MA and SRS interact as the time is coming when my wife and I may need to consider cancelling the election. I'll use somewhat hypothetical amounts to demonstrate my question.
If a person receives non-savings income of £11,310 and savings income of £6,000 they can make a MA election and transfer £1,260 of their Personal Allowance (PA) to their spouse etc. The result is £0 tax - non-savings income fully covered by the reduced PA, SRS on £5,000 and Personal Savings Allowance (PSA) on £1,000.
Am I correct in thinking that if the non-savings income rises to exactly £12,570, then the person ends up with a tax rate equivalent to 40% on income above the PA if they do not cancel the MA? (I haven't fully considered the position where the non-savings income increases above £12,570 and up to £17,570 but presumably the effective 40% slides gradually back towards 20%).
My thinking is:
Non-savings income now £12,570 less reduced PA £11,310 leaving £1,260 taxable at 20% = £252
SRS available on first £5,000 of basic rate income, less any amount of non-savings income that is taxable, so £1,260, leaving SRS on £3,740.
PSA covers the next £1,000, leaving £1,260 of savings income chargeable at 20% = £252
Net outcome is on an increase of £1,260 in the non-savings income, tax payable becomes £504, or 40% of £1,260 unless the MA is revoked for that year.
If that is how the rules work, then those dancing around the various limits in terms of savings and non-savings income need to ensure they cancel the MA for the appropriate year. While your guidance suggests MA may not always be beneficial it does not mention that it can be extremely detrimental.
