Marriage allowance

Marriage allowance

Photo by Sandy Millar on Unsplash

You have probably heard of the Married Couples’ Allowance that most people now can’t claim but do you know about the Marriage Allowance?

The Married Couples’ Allowance was an additional income tax allowance that married couples could claim but it is now restricted to couples where one partner was born before 6th April 1935 and is therefore gradually being phased out.

The Marriage Allowance is not the same and is something that most couples should consider whether they are eligible and can therefore claim.

Basically, the Marriage Allowance is a way for couples to transfer a proportion of their personal income tax allowance between them which means that some of the amount you can earn without being subject to income tax can be transferred to your partner.  Sounds good, but like any tax break there are eligibility criteria.

The clue is in the name; you must be married or in a civil partnership to be eligible and one of you needs to be a non-taxpayer.  Currently this means that one of you needs to have total taxable earnings of less then £12,500 (the current personal income tax allowance).

The taxpayer also has to be a basic rate income tax payer (currently 20%).  If one partner is paying higher or additional-rate income tax then the couple cannot claim the allowance.  If one of you is not paying income tax but the other has taxable income under £50,000 in the current tax year you are probably eligible.

So it’s not an allowance that everyone can use but if one of you is currently not working, say taking a break to look after young children or you are between jobs and your partner has not earned or is not likely to earn more than £50,000 in the current tax year, you may be able to use this allowance to save tax.

You also must both have been born after 6 April 1935, otherwise you could claim the Married Couples’ Allowance instead.

Assuming you are or might be able to use the allowance, what tax saving does it make?

Effectively the Marriage Allowance enables the partner who has an unused amount of personal allowance (so is a non income tax payer) to transfer 10% of their allowance to their partner.  In the current tax year this equates to a transfer of personal income tax allowance of £1,250.  If the basic rate tax paying partner adds this to their own personal allowance, then they will save £250 of income tax.

Not a massive amount I hear you say but as a well-known supermarket is fond of saying, “every little helps”.

An additional benefit of this allowance is that you can backdate a claim to include the last four tax years based on 10% of the personal allowance that applied in those years.  Therefore, if you have not claimed or know that you both meet the criteria for a previous tax year, starting with 2015/16, you can still claim for those years.  If you are able to claim for the current year and all four previous years this could result in an income tax refund of over £1,000!

There is no deadline to apply, so you can do this at any point in the tax year.  To apply for the allowance the non taxpayer must apply to HMRC, as it is part of their personal allowance that is being transferred to their partner.  There is an online application process and this can be found at:

https://www.gov.uk/apply-marriage-allowance

If your application is successful for the current tax year then HMRC will adjust the tax code for the taxpayer or if self-employed make the adjustment as part of their self-assessment.

Also, if successful, 10% of the non taxpayer’s personal allowance will continue to be transferred to the taxpayer automatically until one of you cancels it.  Again, this can be done online.

You will need to inform HMRC if your or your partner’s income changes or your circumstances have changed, e.g., because of divorce or death.

Obviously, this tax saving is not going to change anyone’s life, but it is easy to apply for and it doesn’t matter if you apply and are not eligible, as HMRC just tells you whether you are successful or not.

If you are eligible in this tax year or any of the previous four, why not get some tax back and treat yourselves … or even better save if for the future!

Cheers

Charles