Model Marriage Allowance as the statutory s.55B transfer and Step 6 reduction

[MaxGhenis]

Fixes #1947.

Builds on #1949 (the #1942 fix, merged), which deducts each person's own tax on earnings in UC.

What the law says and what changes

ITA 2007 ss. 55A-55E (legislation.gov.uk, read 2026-09-30; verbatim text in the issue):

	Before	After (= law)
Transferable amount	min(partner's unused allowance, 10% of PA), rounded up to £10	10% of the s. 35(1) allowance, rounded up to £10 (s. 55B(4)(b), (5)): £1,260 in 2026-27. 2015-16 is fixed at £1,060 whatever the allowance (s. 55B(4)(a), a new fixed_amount parameter)
Transferor	allowance unchanged	allowance cut by the transferable amount (s. 55B(6))
Recipient	taxable non-savings income cut by the amount	Step 6 tax reduction of the basic rate, or Scottish basic rate, × the amount (s. 55A(2), s. 55B(1), (3)), capped at the Step 5 tax left after other reductions (s. 29(2)-(3), s. 27(2))
Eligibility	tax band of the recipient (NONE/STARTER/BASIC/INTERMEDIATE)	recipient not liable above the listed basic rates (s. 55B(2)(b), (ba)); transferor the same once their allowance is cut (s. 55C(1)(c), (ca)) and entitled to an allowance (s. 55C(1)(b)); no married couple's allowance claimed by either (s. 55B(2)(d))
Who claims	anyone married with a partner who has unused allowance, both partners if both are below the allowance	the couple elects only if it lowers their combined income tax, in whichever direction lowers it more. One election per couple: s. 55E limits each individual to one election and one reduction, and does not bar elections both ways (which could lower some couples' tax further); HMRC's guidance describes a single transfer from the lower earner
Take-up	the recipient's would_claim_marriage_allowance	the couple's election uses the gaining spouse's would_claim_marriage_allowance: one draw per couple, and the same draw that decided take-up before (the dataset draws it per person at 50%)

The rate test reads the model's own liabilities. Two points follow from the statute's wording:

• Dividends: the dividend nil rate does not help. s. 55B(2)(ba) tests the dividend upper rate "if section 13A (dividend nil rate) were omitted".
• Savings: the savings nil rate does help. s. 55B(2)(b) lists it, and nothing like (ba) applies to savings. (Compare s. 12B(8)(b)(ii), which does look through s. 12A.)

Scottish savings and dividends are banded on UK rates, so an intermediate-rate Scottish taxpayer with savings stays eligible. The old band test made them ineligible.

Variables

New, all Person, YEAR:

• marriage_allowance_transferable_amount: s. 55B(4)-(5).
• is_marriage_allowance_spouse: married and the claimant or partner (Replace generic child and adult flags with each programme's legal definitions #1896's is_claimant_or_partner), only where the benefit unit has two. Children are never spouses.
• makes_marriage_allowance_election: the couple's choice; users can set it as an input.
• marriage_allowance_relinquished: s. 55B(6).
• marriage_allowance_appropriate_percentage: s. 55B(3).
• marriage_allowance_tax_reduction_limit: s. 29(2)-(3).
• marriage_allowance_tax_reduction: s. 55B(1). Added to income_tax_subtractions.

Changed:

• marriage_allowance is now the amount received from the spouse's election, and only the gaining spouse has it. It no longer comes off taxable income: it was removed from earned_taxable_income_exclusions.
• personal_allowance subtracts marriage_allowance_relinquished.
• meets_marriage_allowance_income_conditions is the rate test above.

Removed:

• partners_unused_personal_allowance: it is not part of the law and nothing else used it.
• the eligible_bands parameter.

The CPS expanded-MA contrib reform now overrides meets_marriage_allowance_income_conditions and marriage_allowance_transferable_amount. Its mechanics follow the statute, so a higher-rate recipient saves the basic rate × the amount, not their marginal rate. It also lifts the income condition only when remove_income_condition is set; before, raising only ma_rate lifted it too.

How the election is computed

The election depends on the couple's tax with and without it, and the tax depends on the election. So makes_marriage_allowance_election runs two policyengine-core branches, the pattern PE-US uses for itemisation:

1. No election in force.
2. Every spouse's own allowance cut by the transferable amount, with no reductions granted.

For each spouse, the saving from electing is the partner's reduction (capped at their Step 5 tax left) minus the elector's extra tax. It is rounded to pennies. The couple elects if the saving is positive and the conditions hold. The spouse with the larger saving elects.

The inputs to income tax that don't depend on the election (employment income, adjusted net income, the other allowances, savings, dividend and property income, the Child Benefit charge, other tax credits) are resolved first and set as inputs in both branches. So is the property allowance route (uses_property_allowance, ITTOIA 2005 s. 783BL), which is settled before the election. Holding them fixed does three things:

• the result doesn't depend on which variable a caller asks for first;
• a choice made upstream in branches of its own (a reform's split of adjusted net income, a labour supply response, the property allowance route) isn't remade for the counterfactual;
• on policyengine-core ≥3.33, where set_input on a branch drops values derived from the input it replaces, the branches don't recompute them.

Branches share the simulation's cached arrays until they write (core#556) and are dropped after use.

Tie-break: when both directions save the same, the spouse with the lower adjusted net income elects, then the elder, then the first listed.

Property allowance route: main now chooses each landlord's property allowance route (ITTOIA 2005 ss. 783BE-783BL) by comparing tax with and without the allowance. This PR makes that comparison weigh the benefit unit's income tax, not the landlord's alone. A route can change whether a spouse elects, and so the other spouse's tax. Example (2026): a spouse on £12,000 with £800 of lettings and £200 of finance costs, married to a basic-rate earner on £30,000. Full relief plus the election costs the couple £3,372. Electing out of the allowance for the finance-cost reduction costs the landlord £6 instead of £138, but stops the election, so the couple pays £3,492. The independent review found this; it is now a YAML case and an explicit example in both couple-tax properties, which fail with the old own-tax rule.

Pinned election: set as an input, an election is taken to be one the other spouse is entitled to gain from; the conditions are checked only when the model makes the choice. Only a spouse can give allowance up.

Universal Credit

uc_income_tax_on_earnings (#1949) sets the Step 6 reductions in income_tax_subtractions against the tax on earnings first, except the property finance-cost reduction, which goes against tax on property income. This PR adds the Marriage Allowance reduction to that list, so the recipient's reduction comes off the tax on their earnings. That matches how HMRC delivers it: gov.uk's tax code letters say code M means "you've received a transfer of 10% of your partner's Personal Allowance". So a pensioner's State Pension no longer changes the earning partner's UC earned income once the couple has elected. The strict xfail test_state_pension_does_not_change_partners_marriage_allowance now passes.

Known interaction (intended): the election weighs the couple's income tax, not their UC. At the point where electing stops saving tax, the couple stops electing. The earner's tax then rises by up to £252, and their UC rises by up to 55% of that. test_couple_stops_electing_when_it_no_longer_saves_tax pins an example: 2026, State Pension £12,500 → £12,600, UC £5,509.26 → £5,547.86. A choice rule that also weighed UC would behave differently; that is a separate modelling decision.

Departures in the issue, each now a YAML test

Issue item	Test (marriage_allowance.yaml)	Old model	Law = new model
Worked example (30,000 / 12,000)	"Issue example"	3,372 / 0	3,234 / 138
1. Transferor with £15,000 / £12,000 of interest	"Issue departure 1" (×2)	recipient 3,486 / 3,372	3,234
2. Recipient with £12,570 earnings, £5,000 dividends	"Issue departure 2"	483.75	231.75
3. Scottish intermediate-rate recipient	"Issue departure 3"	saves 264.60	saves 252 (3,199.07)
4. Rounding of the partial unused amount	every case: the amount is always 1,260
5. Double counting when both are below the allowance	"Issue departure 5"	1,260 each	0
6. Married couple's allowance not checked	"Issue departure 6"	MA given	no election

Also covered:

• the transferor just under / at the allowance (elect / not);
• a higher-rate recipient;
• take-up follows the gaining spouse;
• direction regardless of age order;
• the cap at Step 5 tax (86);
• other tax reductions first (186);
• a tie (the lower-income spouse elects, then the elder);
• children in the unit;
• the dividend nil-rate vs savings nil-rate straddles;
• Scottish savings banded on UK rates;
• the pensioner case from the UC test;
• 2015-16 (£1,060) and 2019-20 (£1,250).

meets_marriage_allowance_income_conditions.yaml is rewritten on incomes, not tax-band inputs. It includes s. 55C(1)(c) with the cut allowance (50,000 earnings: eligible with the full allowance, ineligible once it falls to 11,310).

Invariants and property tests

test_marriage_allowance_properties.py (Hypothesis). It generates couples and singles with every taxable income type, in England, Wales and Scotland, with children and occasional married couple's allowance claims, for 2019, 2026 and 2027:

1. The couple's income tax is never higher with the model's election than with none. When the couple elects, it is at least a penny lower.
2. Differential against brute force: the model's couple tax equals the minimum over {no election, first spouse elects, second spouse elects}, each run with the election fixed and filtered by the statutory conditions computed from those runs.
3. With the election fixed, the gaining partner's Marriage Allowance, reduction, allowance and income tax do not change when the elector's income of any type rises. The elector's allowance is exactly the uncut allowance less the transferable amount.
4. Accounting:
   • only spouses elect, at most one per couple;
   • the amount given up equals the amount received in each couple, and is 0 or the transferable amount;
   • the reduction is at most the appropriate percentage × the amount and the Step 5 limit;
   • the gainer's tax falls by exactly the reduction;
   • the elector never pays less.
5. The couple's income tax, with the model's election, never falls when either spouse gains income.
6. No one outside a married couple elects, gives up or receives anything.

UC properties now run with Marriage Allowance claimed:

• test_uc_state_pension_properties.py: non-increasing, pound-for-pound, the private-pension equivalence, and property income excluded while State Pension counts;
• test_uc_earnings_deductions_properties.py: invariants 1-3, with Deduct only each person's own tax and NI on earnings from UC earned income #1949's married couple's allowance cases;
• test_uc_income_from_capital_properties.py: invariant 2.

Before, these switched Marriage Allowance off "until this is fixed". Where a property compares two runs, each couple's election is held at its first-run choice, because the election legitimately responds to income.

Mutation testing is part of the GPT-6.1 Sol review now running at 99182e3; results go here when it reports.

Enhanced FRS impact

Real 2026 Microsimulation runs on a private copy of the Enhanced FRS 2024-25 (enhanced_frs_2024_25.h5, sha256 e433e532…), main (e01f2f5) against this branch (99182e3), both trees clean. There are four runs: main, branch, and each with no one claiming (would_claim_marriage_allowance false for all). Branch minus main, 2026-27:

Income tax	−£41.5m
Household net income	+£41.4m
Universal Credit	+£0.01m
Pension Credit	−£0.15m
Council Tax Reduction	−£0.01m
Housing Benefit	−£0.00m
MA cost, old model (tax with no one claiming − tax as modelled)	£275.6m
MA cost, law	£317.2m
Couples electing	1.47m
Reductions	£359.8m (allowance given up: £1.85bn)
Poverty	AHC −0.002pp overall, −0.010pp pensioners; BHC and children unchanged to 0.001pp

Differential check: with no one claiming, main and branch agree exactly on all 32 recorded person, benefit-unit and household arrays. So this changes nothing but Marriage Allowance.

2026 decomposition (aggregates only):

• Electing couples. 1.47m couples elect. For 95% of recipients the reduction is the full 20% × 1,260 = 252; for the rest it is capped at their tax. Against the old model, electors' own tax is £42.7m higher and recipients' £84.4m lower.
• Couples that newly elect (0.24m): they pay £34.8m less. In almost all (0.239m) the transferor's adjusted net income is at least the £12,570 allowance, so the old model saw no unused allowance to transfer. 0.21m of these transferors have savings or dividends. In 0.12m of these couples the recipient has dividends.
• Couples the old model gave MA but that do not elect now (0.60m): their tax rises by £0.2m. Only 0.004m of them saved more than £1 from the old Marriage Allowance. 0.14m had it on both partners (the double counting).
• Tax moved between partners with no change for the couple: 0.03m people. This is the issue's worked example.
• Scottish recipients (0.16m) pay £14.0m less.
• UC changes for 7.4k benefit units, net +£0.01m. In every benefit unit whose UC rises (7.0k), the tax UC deducts from earnings rose.
• Household net income rises £41.4m, mostly in deciles 7 (£9.2m) and 9 (£21.9m). 0.35m households gain and 0.09m lose.

Take-up: the dataset draws would_claim_marriage_allowance per person at 50%. The couple's election uses the gaining spouse's draw, the same draw that decided take-up before. A first version used the elder spouse's draw, which moved take-up between couples for no legal reason, so it was dropped.

Cost of the election's branches: six years (2025-2030) in one Enhanced FRS simulation, main against this branch. Byte-compiled, /usr/bin/time -l, two runs each; logs in the review folder (impact/timing_1012/):

• peak memory footprint 3.66 → 3.78 GB (+3.2%);
• instructions retired 238.0bn → 255.3bn (+7.3%);
• user CPU 20.3 → 21.7 s.

The branches share the simulation's cached arrays until they write (policyengine-core ≥3.32.12). On core 3.32.9 the same design took peak memory from 3.54 to 5.83 GB.

Not modelled, and limits inherited from the model

• Not modelled:

  • residence (s. 55B(2)(c), s. 55C(1)(d), (2)-(4)): the model assumes UK residents;
  • death during the year (s. 55B(7));
  • backdating and continuity of elections (s. 55D);
  • marriages for part of the year;
  • spouses outside the benefit unit (s. 55C(1)(a) needs no cohabitation, but the absent spouse is rarely in the survey).

• The election is judged on the model's own income tax, so it inherits these pre-existing departures, each filed as a follow-up (all rechecked on 2026-10-12 main):

  • Starting rate for savings: the band is not reduced by non-savings taxable income below £17,570 (s. 12). In that case the model can elect where the law would not. Example: a transferor with £12,500 of earnings and £5,500 of interest, and a recipient on £30,000 (2026). The model elects, saving the couple £14. In law, the cut allowance shrinks the starting-rate band, the transferor pays £376 not £238, and electing would cost the couple £124. This is the largest inherited limit.
  • Gift Aid reduces taxable income by the net gift instead of extending the basic rate band by the grossed-up gift (s. 414(2)).
  • Allowance order: allowances go against savings before dividends rather than in the order that most reduces tax (s. 25(2)).
  • 2016-17: the personal allowance parameter is missing (£11,000), so the transferable amount shows as £1,060, not £1,100.
  • Dividend upper rate: its own threshold lags the basic rate limit before 2026-27. The rate test uses the basic rate limit.
  • 2015-16 basic rate limit is £32,000 in the parameter; Finance Act 2014 s. 2 set it at £31,785.

  Main has since fixed two limits this PR first listed: savings and dividends now band above property income, and a Scottish taxpayer's personal savings allowance is set on UK bands.

• One election per couple. s. 55E limits each individual to one election and one reduction but does not bar elections both ways. Both ways lowers tax where giving up allowance costs less than the basic rate. For example, two spouses each with £20,000 of dividends (2026) pay £1,489.95 with no election, £1,373.40 with the model's single election, and £1,256.85 with both electing. The model allows one election per couple, the single transfer from the lower earner that HMRC's guidance describes.

• Double taxation relief should come after the Marriage Allowance (s. 27(6)), but other_tax_credits lumps it with other reductions. Total liability is unaffected; only the split of the reduction is.

• SPI dataset: policyengine-uk-data's SPI build sets marriage_allowance as an input where MAIND == 1. SPI: keep Marriage Allowance on recipients (MAIND) and give transferors their cut allowance policyengine-uk-data#502 (approved; it waits on this PR) establishes that MAIND marks recipients, keeps the input there, and gives transferors marriage_allowance_relinquished.

Axiom

axiom: TheAxiomFoundation/rulespec-uk#362 queued (s.55C; extended on 2026-09-30 for this PR with s.55C(1)(ca) and s.55B(2)(ba) and seven companion cases) + the s.55B re-encode queued in rulespec-uk bulk/worklist.yaml (batch PE-UK-CHILD-DEFS), which already requires the fixed transferable amount, the s.55B(6) cut and the s.55B(1) reduction.

rulespec-uk's s.55B module still caps the transfer at the partner's unused allowance: it encodes the same departure PolicyEngine had. The worklist entry and #362 both called the PolicyEngine side "a separate follow-up"; this is it.

Review

• A first GPT-6.1 Sol review (of dafe630) was cut off by a host reboot after it found the property-route interaction above and six smaller points. All are addressed in 99182e3.
• A fresh Sol review of 99182e3 is running (Subfleet 20261012-084806-ma1963-sol-review-2).

🤖 Generated with Claude Code

Reproducer: policyengine_uk/tests/policy/baseline/finance/benefit/family/universal_credit/income/uc_earnings_deductions.yaml, policyengine_uk/tests/policy/baseline/gov/hmrc/income_tax/allowances/marriage_allowance.yaml, policyengine_uk/tests/policy/baseline/gov/hmrc/income_tax/allowances/meets_marriage_allowance_income_conditions.yaml, policyengine_uk/tests/policy/baseline/gov/hmrc/income_tax/property_income_band_base.yaml::Case 7, Marriage Allowance leaves the band base alone (#1947)., policyengine_uk/tests/policy/reforms/cps/marriage_tax_reforms.yaml::Expanded MA — rate-only expansion keeps the higher-rate bar, policyengine_uk/tests/test_marriage_allowance_election_branches.py::test_results_do_not_depend_on_query_order

[MaxGhenis]

Heads-up from #1949, which this stacks on: its head moved from d0fc22f to 514132f with one added commit and no history rewrite. The commit changes two lines in policyengine_uk/tests/test_uc_state_pension_properties.py (#MA_ISSUE → #1947 in the docstring and in the strict xfail's reason) and one sentence in the UC docs page. No formula changed. A rebase onto 514132f should conflict only where this PR removes that xfail marker. Further review fixes to #1949, if any, will also arrive as added commits.

[MaxGhenis]

Update from #1949: its head is now c98c53c, a merge of #1943's new head ce85220, which has main 7b9fc37 merged in. No history rewrite and no formula change. Rebasing or merging onto c98c53c brings in current main, so this PR's impact base moves too. The one conflict #1949 had was the UC docs means-test sentence.

[MaxGhenis]

The last description update dropped this PR's Reproducer: line, so the Fix evidence check failed. I've added it back. Please keep it in the description file you edit from, or narrow it to the test that reproduces the bug:

Reproducer: `policyengine_uk/tests/policy/baseline/finance/benefit/family/universal_credit/income/uc_earnings_deductions.yaml`, `policyengine_uk/tests/policy/baseline/gov/hmrc/income_tax/allowances/marriage_allowance.yaml`, `policyengine_uk/tests/policy/baseline/gov/hmrc/income_tax/allowances/meets_marriage_allowance_income_conditions.yaml`, `policyengine_uk/tests/policy/baseline/gov/hmrc/income_tax/property_income_band_base.yaml::Case 7, Marriage Allowance leaves the band base alone (#1947).`, `policyengine_uk/tests/policy/reforms/cps/marriage_tax_reforms.yaml::Expanded MA — rate-only expansion keeps the higher-rate bar`, `policyengine_uk/tests/test_marriage_allowance_election_branches.py::test_results_do_not_depend_on_query_order`

🤖 Generated with Claude Code