Briefing Note (BN102)

Couple penalties and premiums in the UK tax and benefit system

Date: 29 April 2010
DOI: 10.1920/bn.ifs.2010.00102

This report analyses the distribution of couple penalties and premiums in the tax and benefit system using a large, statistically representative sample of households. It defines 'couple penalties and premiums' in the tax and benefit system as the change in entitlements to benefits and tax credits and in liability to taxes that occurs when two single people marry, or start to live together as husband and wife. Two adults can almost certainly save on living costs by living together, but unlike some past studies, this study does not attempt to measure the overall financial or non-financial benefits or costs to living as a couple compared with living apart. This study cannot tell us whether couples would be better off living apart than living as a couple, but simply measures how taxes and benefits vary by family situation, an issue of more direct public policy concern. In general, our analysis is not always consistent with past studies of couple penalties and premiums, some of which have tried to measure not just couple penalties and premiums from the tax and benefit system, but also the inherent financial advantage that arises when living as a couple (by comparing equivalised net incomes after housing costs).

The report uses the phrase 'net state support' to refer to entitlements to benefits and tax credits less liability to taxes. If net state support rises when a couple splits up, then this is called a 'couple penalty'; if net state support falls, this is called a 'couple premium'. In some cases, net state support does not change when a couple splits up, and we say that the tax and benefit system is neutral towards relationship status in these cases. The words 'penalty' and 'premium' are unfortunate, because they suggest that couple penalties are undesirable and couple premiums desirable. Although policymakers may make that judgement, they may also make alternative judgements.