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

[MaxGhenis]

Fixes #1947.

Stacks on #1949 (the #1942 fix, which stacks on #1943). The base is main so CI runs, and the diff includes #1943 and #1949 until they merge.

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	the fixed 10% of the s. 35(1) allowance, rounded up to £10 (s. 55B(4)-(5)); £1,260 in 2026-27, £1,060 in 2015-16
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)); at most one election (s. 55E)
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
Take-up	the recipient's would_claim_marriage_allowance	the couple's election uses the elder spouse's would_claim_marriage_allowance, so each couple has one draw (the dataset draws it per person at 50%, so take-up stays 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: the two eldest married members of a benefit unit that has exactly two. This also works before Replace generic child and adult flags with each programme's legal definitions #1896 lands, while marital_status still marks children in a married benefit unit as married.
• 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.

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; on a tie, the elder. Branches are dropped after use.

Overhead: ~20% on small household simulations (noisy, on a loaded machine). Enhanced FRS: see below.

Universal Credit

uc_income_tax_on_earnings (from #1949) takes the recipient's reduction off the tax on their earnings first. That is 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.

Other Step 6 reductions (married couple's allowance, other_tax_credits) keep #1949's min(tax, income_tax), which sets them against other income first. That is the opposite order, and a comment says so. Married couple's allowance needs a birth before 6 April 1935, so it almost never reaches UC.

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 elder spouse;
• direction regardless of age order;
• the cap at Step 5 tax (86);
• other tax reductions first (186);
• a tie;
• 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 covers pound-for-pound, non-increasing, and the private-pension and property-income equivalences. test_uc_earnings_deductions_properties.py covers invariants 1-3; the old docstrings said these "switch 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 of these tests is running; results will be added here before the PR leaves draft.

Enhanced FRS impact

Real Microsimulation runs on a private copy of the Enhanced FRS 2024-25 (enhanced_frs_2024_25.h5, sha256 e433e532…). Base is #1949's head d0fc22f and head is this branch (a1a4822); both trees were clean. There are 4 runs per year: base, head, and each with no one claiming (would_claim_marriage_allowance false for all). £m, head minus base:

Year	Income tax	Household net income	UC	Pension Credit	MA cost, old model	MA cost, law	Couples electing	Reductions
2025	−44.5	+44.5	+0.18	−0.17	293.2	337.6	1.70m	420.0
2026	−50.3	+50.3	+0.20	−0.19	277.7	328.0	1.51m	370.4
2027	−44.1	+44.2	+0.19	−0.15	265.7	309.9	1.44m	356.2
2028	−33.7	+33.9	+0.18	−0.01	262.2	296.0	1.36m	336.8
2029	−30.1	+29.9	−0.04	−0.12	252.0	282.1	1.33m	330.4
2030	−22.4	+22.1	−0.11	−0.22	243.9	266.3	1.31m	327.0

"MA cost" is income tax with no one claiming minus income tax as modelled. Housing Benefit and CTR move by less than £0.01m. Poverty rates (BHC and AHC; all, children, pensioners, working age) are unchanged to 0.001pp in 2026 and 2027, and move by at most 0.011pp in other years.

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

2026 decomposition (aggregates only):

• Electing couples. 1.51m couples elect. For 96% 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 £42.4m higher and recipients' £95.8m lower.
• Couples that newly elect (0.29m): they pay £46.4m less. In every one the transferor's adjusted net income is at least the £12,570 allowance, so the old model saw no unused allowance to transfer. 0.25m of these transferors have savings or dividends. In 0.13m of these couples the recipient has dividends.
• Couples the old model gave MA but that do not elect now (0.61m): their tax rises only £3.1m. Only 0.015m 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: 0.04m people. This is the issue's worked example.
• Scottish recipients (0.16m) pay £13.7m less.
• UC changes for 8.1k benefit units, net +£0.2m. In every benefit unit whose UC rises, the tax UC deducts from earnings rose.
• Household net income rises £50.3m, mostly in deciles 7 (£9.6m) and 9 (£30.1m). 0.39m households gain and 0.10m 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. That reshuffled take-up across ~0.65m couples for no legal reason, so it was dropped; those runs are kept in the review folder.

Runtime: the election's branches add about 0.4–1 s per year to a full Enhanced FRS run, on a heavily loaded machine.

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.

The rate test inherits the model's own income tax stacking. Chips filed for pre-existing bugs found on the way:

• savings are not stacked above property income, and the starting-rate taper double-counts the allowance;
• the dividend upper-rate threshold in 2015-2025;
• the missing 2016-17 £11,000 allowance, which also makes 2016's transferable amount £1,060, not £1,100;
• the Scottish PSA is banded on Scottish rates (s. 12B(8)(b)(iv)).

Axiom

axiom: TheAxiomFoundation/rulespec-uk#362 queued (s.55C, extended for this PR with s.55C(1)(ca) and s.55B(2)(ba) and seven more companion cases) + the s.55B re-encode queued in rulespec-uk bulk/worklist.yaml (batch PE-UK-CHILD-DEFS, pending), 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 encoded the same departure as PolicyEngine. The worklist entry and #362 both called the PolicyEngine side "a separate follow-up"; this is it.

Review

Independent verification (hand computation from the statute, adversarial law and robustness reviews) is running; results will be added before this leaves draft.

🤖 Generated with Claude Code

[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.