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

changelog.d/marriage-allowance-election.fixed.md

@@ -0,0 +1 @@
+Model Marriage Allowance as ITA 2007 ss. 55A-55E provide. The electing spouse gives up the fixed transferable amount (10% of the personal allowance, rounded up to £10) from their own allowance, and the other spouse's tax falls at Step 6 by the basic rate (or Scottish basic rate) times that amount, capped at their tax. Previously the recipient's taxable income fell by the transferor's unused allowance. The couple elects only when the conditions in s. 55B(2) and s. 55C(1) are met and it lowers their combined income tax. Universal Credit deducts the reduction from the recipient's tax on their earnings, so a pensioner's State Pension no longer changes the earning partner's earned income.

changelog.d/uc-earned-income-own-tax.fixed.md

@@ -0,0 +1 @@
+Deduct from each person's Universal Credit earnings only their own income tax and National Insurance on that employment or self-employment (UC Regs 2013 reg. 55(5)(b), reg. 57(2) step 3), not the whole benefit unit's tax on all income, so tax on pensions, State Pension, property, savings and dividends, the High Income Child Benefit Charge and voluntary Class 3 contributions no longer reduce earned income.

docs/book/programs/gov/dwp/universal-credit.ipynb

@@ -44,7 +44,7 @@
   {
    "cell_type": "markdown",
    "metadata": {},
-   "source": "## How PolicyEngine computes Universal Credit\n\nPolicyEngine computes Universal Credit at the benefit-unit level in three stages:\n\n1. **Maximum entitlement** (`uc_maximum_amount`): sum the elements the benunit qualifies for — `uc_standard_allowance`, `uc_child_element`, `uc_disability_elements`, `uc_carer_element`, `uc_housing_costs_element`, and `uc_childcare_element`.\n2. **Means test**: the maximum entitlement is reduced by the benunit's countable earnings above its work allowance (`uc_work_allowance`) at the published taper rate (the `gov.dwp.universal_credit.means_test.reduction_rate` parameter, currently 55%), plus all of its unearned income (`uc_unearned_income`), pound for pound. Unearned income is the list in `gov.dwp.universal_credit.means_test.income_definitions.unearned`: retirement pension income (State Pension and private pensions, UC Regulations 2013 regs 66(1)(a) and 67), Carer's Allowance, carer support payment (up to the Carer's Allowance rate, from November 2023), contribution-based JSA and ESA, maternity allowance, industrial injuries benefit, and the tariff income deemed from capital (reg 72). Actual savings interest, dividends and ordinary rental income are excluded from UC unearned income at every capital level; capital counts through its tariff income instead. Asset rules apply on top of this — capital above the lower threshold deems a tariff income, and capital above the upper threshold disqualifies the benunit entirely.\n3. **Benefit cap**: the post-means-test award (`universal_credit_pre_benefit_cap`) is finally reduced by `benefit_cap_reduction` to produce `universal_credit`. The benefit cap only applies to benunits without a benefit-cap exemption (working enough hours, having a qualifying disability benefit, etc.).\n\nThe take-up step is handled by the input variable `would_claim_uc`, which is populated stochastically when the dataset is built so that PolicyEngine's caseload aggregates match published DWP claimant numbers rather than the full eligible population.\n\nParameters live in `policyengine_uk/parameters/gov/dwp/universal_credit/` and the per-element formulas in `policyengine_uk/variables/gov/dwp/universal_credit/`."
+   "source": "## How PolicyEngine computes Universal Credit\n\nPolicyEngine computes Universal Credit at the benefit-unit level in three stages:\n\n1. **Maximum entitlement** (`uc_maximum_amount`): sum the elements the benunit qualifies for — `uc_standard_allowance`, `uc_child_element`, `uc_disability_elements`, `uc_carer_element`, `uc_housing_costs_element`, and `uc_childcare_element`.\n2. **Means test**: each person's earnings (`uc_individual_earned_income`) are net of their own relievable pension contributions and the income tax and National Insurance they pay on that employment or self-employment (UC Regulations 2013 regs 55(5) and 57(2)): `uc_income_tax_on_earnings` treats earnings as the lowest slice of the person's non-savings income, so tax on pensions, property, savings and dividends is never deducted, and one partner's tax never reduces the other's earnings. The maximum entitlement is then reduced by 55% (the `gov.dwp.universal_credit.means_test.reduction_rate` parameter) of the benunit's combined earnings above its work allowance (`uc_work_allowance`), and by all of its unearned income (`uc_unearned_income`), pound for pound. Unearned income is the list in `gov.dwp.universal_credit.means_test.income_definitions.unearned`: retirement pension income (State Pension and private pensions, UC Regulations 2013 regs 66(1)(a) and 67), Carer's Allowance, carer support payment (up to the Carer's Allowance rate, from November 2023), contribution-based JSA and ESA, maternity allowance, industrial injuries benefit, and the tariff income deemed from capital (reg 72). Actual savings interest, dividends and ordinary rental income are excluded from UC unearned income at every capital level; capital counts through its tariff income instead. Asset rules apply on top of this — capital above the lower threshold deems a tariff income, and capital above the upper threshold disqualifies the benunit entirely.\n3. **Benefit cap**: the post-means-test award (`universal_credit_pre_benefit_cap`) is finally reduced by `benefit_cap_reduction` to produce `universal_credit`. The benefit cap only applies to benunits without a benefit-cap exemption (working enough hours, having a qualifying disability benefit, etc.).\n\nThe take-up step is handled by the input variable `would_claim_uc`, which is populated stochastically when the dataset is built so that PolicyEngine's caseload aggregates match published DWP claimant numbers rather than the full eligible population.\n\nParameters live in `policyengine_uk/parameters/gov/dwp/universal_credit/` and the per-element formulas in `policyengine_uk/variables/gov/dwp/universal_credit/`."
   },
   {
    "cell_type": "code",

policyengine_uk/parameters/gov/hmrc/income_tax/allowances/marriage_allowance/max.yaml

@@ -1,9 +1,9 @@
-description: Maximum Marriage Allowance taxable income reduction, as a percentage of the full Personal Allowance.
+description: Marriage Allowance transferable amount, as a share of the personal allowance in ITA 2007 s. 35(1). For 2015-16 the Act fixes the amount at £1,060, which is 10% of that year's £10,600 allowance.
 values:
-  2016-04-01: 0.1
+  2015-04-06: 0.1
 metadata:
   unit: /1
-  label: Marriage Allowance maximum percentage
+  label: Marriage Allowance transferable share of the personal allowance
   reference:
-    - title: Income Tax Act 2007 s. 55B(4)(b)
-      href: https://www.legislation.gov.uk/ukpga/2007/3/part/3/chapter/3A
+    - title: Income Tax Act 2007 s. 55B(4)
+      href: https://www.legislation.gov.uk/ukpga/2007/3/section/55B

policyengine_uk/parameters/gov/hmrc/income_tax/allowances/marriage_allowance/rounding_increment.yaml

@@ -1,9 +1,9 @@
-description: The Marriage Allowance is rounded up by this increment.
+description: The Marriage Allowance transferable amount is rounded up to a multiple of this amount.
 values:
   2016-04-01: 10
 metadata:
   unit: currency-GBP
   label: Marriage Allowance rounding increment
   reference:
     - title: Income Tax Act 2007 s. 55B(5)
-      href: https://www.legislation.gov.uk/ukpga/2007/3/part/3/chapter/3A
+      href: https://www.legislation.gov.uk/ukpga/2007/3/section/55B

policyengine_uk/parameters/gov/hmrc/income_tax/earned_taxable_income_exclusions.yaml

@@ -5,7 +5,6 @@ values:
     - taxable_dividend_income
     - taxable_property_income
     - received_allowances_earned_income
-    - marriage_allowance
 
 metadata:
   unit: list

policyengine_uk/parameters/gov/hmrc/income_tax/income_tax_subtractions.yaml

@@ -5,7 +5,10 @@ metadata:
   reference:
     - title: Income Tax Act 2007 s. 23
       href: https://www.legislation.gov.uk/ukpga/2007/3/section/23
+    - title: Income Tax Act 2007 s. 26(1)(a)
+      href: https://www.legislation.gov.uk/ukpga/2007/3/section/26
 values:
   0000-01-01:
   - capped_mcad
   - other_tax_credits
+  - marriage_allowance_tax_reduction

policyengine_uk/reforms/cps/marriage_tax_reforms.py

@@ -1,10 +1,14 @@
 from policyengine_uk.model_api import *
+from policyengine_uk.variables.gov.hmrc.income_tax.allowances.meets_marriage_allowance_income_conditions import (
+    liable_only_at_marriage_allowance_rates,
+)
 from typing import Union, Optional
 
 
 def create_expanded_ma_reform(
     max_child_age: Optional[int] = None,
     child_education_levels: Optional[List[str]] = None,
+    remove_income_condition: bool = True,
 ) -> Reform:
     class meets_expanded_ma_conditions(Variable):
         label = "Qualifies for an expanded Marriage Allowance"
@@ -32,70 +36,54 @@ def formula(person, period):
 
     class meets_marriage_allowance_income_conditions(Variable):
         label = "Meets Marriage Allowance income conditions"
-        documentation = "Whether this person (and their partner) meets the conditions for this person to be eligible for the Marriage Allowance, as set out in the Income Tax Act 2007 sections 55B and 55C"
+        documentation = (
+            "Whether this person pays income tax only at the rates that allow "
+            "a Marriage Allowance election, or meets the reform's expansion "
+            "conditions, which lift that restriction."
+        )
         entity = Person
         definition_period = YEAR
         value_type = bool
         reference = "https://www.legislation.gov.uk/ukpga/2007/3/section/55B"
 
         def formula(person, period, parameters):
-            band = person("tax_band", period)
-            eligible_bands = parameters(
-                period
-            ).gov.hmrc.income_tax.allowances.marriage_allowance.eligible_bands
-            base_eligible = np.isin(band.decode_to_str(), eligible_bands)
-            # Expand to higher bands if the reform's expansion conditions are met.
-            bands = band.possible_values
-            expansion = person("meets_expanded_ma_conditions", period) & (
-                (band == bands.HIGHER) | (band == bands.ADDITIONAL)
+            conditions = liable_only_at_marriage_allowance_rates(
+                person, period, parameters
             )
-            return base_eligible | expansion
+            if not remove_income_condition:
+                return conditions
+            return conditions | person("meets_expanded_ma_conditions", period)
 
-    class marriage_allowance(Variable):
+    class marriage_allowance_transferable_amount(Variable):
         value_type = float
         entity = Person
-        label = "Marriage Allowance"
+        label = "Marriage Allowance transferable amount"
+        documentation = (
+            "The share of the personal allowance a Marriage Allowance election "
+            "transfers, at the reform's rate for couples meeting its expansion "
+            "conditions, rounded up to the rounding increment."
+        )
         definition_period = YEAR
-        reference = "https://www.legislation.gov.uk/ukpga/2007/3/part/3/chapter/3A"
+        reference = "https://www.legislation.gov.uk/ukpga/2007/3/section/55B"
         unit = GBP
 
         def formula(person, period, parameters):
-            marital = person("marital_status", period)
-            married = marital == marital.possible_values.MARRIED
-            eligible = (
-                married
-                & person("is_claimant_or_partner", period)
-                & person("meets_marriage_allowance_income_conditions", period)
-            )
-            transferable_amount = person("partners_unused_personal_allowance", period)
-            allowances = parameters(period).gov.hmrc.income_tax.allowances
-            capped_percentage = allowances.marriage_allowance.max
-            expanded_ma_cap = parameters(
-                period
-            ).gov.contrib.cps.marriage_tax_reforms.expanded_ma.ma_rate
-            capped_percentage = where(
+            p = parameters(period)
+            allowances = p.gov.hmrc.income_tax.allowances
+            share = where(
                 person("meets_expanded_ma_conditions", period),
-                expanded_ma_cap,
-                capped_percentage,
-            )
-            max_amount = allowances.personal_allowance.amount * capped_percentage
-            amount_if_eligible_pre_rounding = max_(
-                min_(transferable_amount, max_amount), 0
-            )
-            # Round up.
-            rounding_increment = allowances.marriage_allowance.rounding_increment
-            amount_if_eligible = (
-                np.ceil(amount_if_eligible_pre_rounding / rounding_increment)
-                * rounding_increment
+                p.gov.contrib.cps.marriage_tax_reforms.expanded_ma.ma_rate,
+                allowances.marriage_allowance.max,
             )
-            takes_up = person("would_claim_marriage_allowance", period)
-            return eligible * amount_if_eligible * takes_up
+            amount = allowances.personal_allowance.amount * share
+            increment = allowances.marriage_allowance.rounding_increment
+            return np.ceil(amount / increment) * increment
 
     class reform(Reform):
         def apply(self):
             self.add_variable(meets_expanded_ma_conditions)
             self.update_variable(meets_marriage_allowance_income_conditions)
-            self.update_variable(marriage_allowance)
+            self.update_variable(marriage_allowance_transferable_amount)
 
     return reform
 
@@ -220,6 +208,7 @@ def create_marriage_tax_reform(parameters, period):
     if remove_income_condition or rate != original_rate:
         ma_reform = create_expanded_ma_reform(
             max_child_age=ma_max_child_age if ma_max_child_age > 0 else None,
+            remove_income_condition=bool(remove_income_condition),
         )
     else:
         ma_reform = None
@@ -246,4 +235,5 @@ def create_marriage_tax_reform(parameters, period):
 # These build the reform classes with no child-age / education conditions, so the reform
 # applies to every married couple regardless of child presence.
 expanded_ma_reform = create_expanded_ma_reform()
+expanded_ma_reform_rate_only = create_expanded_ma_reform(remove_income_condition=False)
 marriage_neutral_it_reform = create_marriage_neutral_income_tax_reform()

policyengine_uk/tests/policy/baseline/finance/benefit/family/universal_credit/income/uc_earned_income.yaml

@@ -5,10 +5,11 @@
     employment_income: 1_000
     miscellaneous_income: 100
     uc_work_allowance: 10
-    # The claimant's own tax (UC reg 22 counts the claimant's earnings).
-    tax: 1
+    # The claimant's own tax on these earnings.
+    uc_income_tax_on_earnings: 1
   output:
-    uc_earned_income: 1100 - 11
+    uc_individual_earned_income: 1_100 - 1
+    uc_earned_income: 1_100 - 11
 
 - name: Capped at 0
   period: 2025
@@ -17,7 +18,46 @@
     employment_income: 1_000
     miscellaneous_income: 100
     uc_work_allowance: 2_000
-    # The claimant's own tax (UC reg 22 counts the claimant's earnings).
-    tax: 1
+    # The claimant's own tax on these earnings.
+    uc_income_tax_on_earnings: 1
   output:
     uc_earned_income: 0
+
+- name: Each person's deductions come off only their own earnings
+  period: 2025
+  absolute_error_margin: 0
+  input:
+    people:
+      earner:
+        employment_income: 1_000
+        uc_income_tax_on_earnings: 100
+        uc_national_insurance_on_earnings: 10
+      partner:
+        uc_income_tax_on_earnings: 500
+        pension_contributions: 50
+    benunits:
+      benunit:
+        members: [earner, partner]
+        uc_work_allowance: 0
+  output:
+    uc_individual_earned_income: [890, 0]
+    uc_earned_income: 890
+
+- name: Work allowance comes off combined earnings after each person's deductions
+  period: 2025
+  absolute_error_margin: 0
+  input:
+    people:
+      earner:
+        employment_income: 1_000
+        uc_income_tax_on_earnings: 100
+      partner:
+        employment_income: 500
+        pension_contributions: 50
+    benunits:
+      benunit:
+        members: [earner, partner]
+        uc_work_allowance: 300
+  output:
+    uc_individual_earned_income: [900, 450]
+    uc_earned_income: 1_050