Fix Scottish tax bands and test Marriage Allowance rates directly

changelog.d/2350.fixed.md

@@ -0,0 +1 @@
+The model now reports Scottish tax bands from 2017-18 using Scottish limits for non-savings, non-dividend income and UK limits for savings and dividends, and tests the Marriage Allowance income conditions directly under ITA 2007 s. 55B(2)(b) and (ba), allowing income at a rate limit and savings at a permitted nil rate. It gives the Marriage Allowance recipient a Step 6 tax reduction of the basic rate, or the Scottish basic rate, on the transferable amount (s. 55B(1) and (3)), in place of a deduction from taxable income. A reduction larger than the tax on earnings now also comes off the tax the Welsh working-age Council Tax Reduction route disregards on pensions and benefits.

docs/engineering/gift-aid.md

@@ -84,8 +84,9 @@ order, each against the extended limits. Property income is taxed on top of
 and savings and dividends on top of `non_savings_taxable_income`
 (`earned_taxable_income` plus property income after allowances). Both bases
 derive from `net_income`, so the gift raises the limits without also shrinking
-the income beneath them. They differ only when Marriage Allowance applies,
-which `earned_taxable_income` subtracts (#1947). The Personal Savings Allowance
+the income beneath them. The two bases come to the same amount; the Marriage
+Allowance reduces neither, since the model gives it as a tax reduction at Step 6
+(`marriage_allowance_tax_reduction`). The Personal Savings Allowance
 compares net income less allowances with the UK basic and higher rate limits,
 both extended by the gross gift ([s. 12B](https://www.legislation.gov.uk/ukpga/2007/3/section/12B),
 including s. 12B(8) for Scottish taxpayers, with s. 414(2)(b)).

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

@@ -1,4 +1,4 @@
-description: Maximum Marriage Allowance taxable income reduction, as a percentage of the full Personal Allowance.
+description: Maximum Marriage Allowance transferable amount, as a percentage of the full Personal Allowance. The recipient gets a tax reduction of the appropriate percentage of that amount.
 values:
   2016-04-01: 0.1
 metadata:

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/step_6_tax_reductions.yaml

@@ -10,6 +10,10 @@ metadata:
       href: https://www.legislation.gov.uk/ukpga/2007/3/section/26
     - title: Income Tax Act 2007 s. 29(2) and (3)
       href: https://www.legislation.gov.uk/ukpga/2007/3/section/29
+    - title: Income Tax Act 2007 s. 27(2)
+      href: https://www.legislation.gov.uk/ukpga/2007/3/section/27
+    - title: Income Tax Act 2007 s. 55A(2)
+      href: https://www.legislation.gov.uk/ukpga/2007/3/section/55A
     - title: Budget 2026, paragraph 6.182 (Pension Tax Allowance)
       href: https://assets.publishing.service.gov.uk/media/6ae1ec57bdb574cf1c9b3f12/E03668986_HMT_Budget_2026_ELAY__2_.pdf#page=135
 values:
@@ -19,3 +23,9 @@ values:
     - property_finance_cost_relief
     # Budget 2026, 2027-28 to 2029-30; zero in other years.
     - pension_tax_allowance
+    # ITA 2007 s. 55A(2) and s. 55B(1). Section 27(5) does not list Chapter 3A,
+    # so s. 27(2) sets its place: the order that gives the greatest reduction.
+    # Each reduction above has an amount fixed before Step 6, so every order
+    # deducts the same total. Listing this one last leaves the amounts of the
+    # reductions above as they were.
+    - marriage_allowance_tax_reduction

policyengine_uk/reforms/cps/marriage_tax_reforms.py

@@ -1,6 +1,9 @@
 from policyengine_uk.model_api import *
 from policyengine_uk.utils.income_tax import net_income_from_adjusted_net_income
 from policyengine_uk.utils.supplied_inputs import supplied_input
+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
 
 
@@ -34,23 +37,22 @@ 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 meets the statutory Marriage Allowance income "
+            "conditions or this reform's expansion conditions."
+        )
         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)
+            base_eligible = liable_only_at_marriage_allowance_rates(
+                person, period, parameters
             )
+            # Expand to people liable above those rates who meet the reform's
+            # expansion conditions.
+            expansion = person("meets_expanded_ma_conditions", period) & ~base_eligible
             return base_eligible | expansion
 
     class marriage_allowance(Variable):

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

@@ -411,7 +411,6 @@
       - taxable_dividend_income
       - taxable_property_income
       - received_allowances_earned_income
-      - marriage_allowance
       - taxable_pension_income
     age: 40
     employment_income: 20_000