If you’re married or in a civil partnership and looking to reduce your tax bill, then the Marriage Allowance might be just what you need. This government scheme allows you to transfer £1,260 of your Personal Allowance to your spouse, potentially saving them up to £252 in taxes for the year. The process is simple: as the lower earner, you must have an income below your Personal Allowance, which is typically £12,570. By transferring part of your allowance to your partner, you may have to pay slightly more tax yourself, but as a couple, you could end up paying less overall. So, let’s take a closer look at how the Marriage Allowance works and how you can apply.
How Marriage Allowance Works
Marriage Allowance is a tax benefit in the United Kingdom that allows eligible couples to transfer a portion of their Personal Allowance to their spouse or civil partner. This can result in a reduction of the partner’s tax liability, leading to potential tax savings. Understanding how Marriage Allowance works can help couples navigate the application process and take advantage of this financial benefit.
Transfer of Personal Allowance
The basis of Marriage Allowance is the transfer of Personal Allowance from one partner to the other. Personal Allowance refers to the amount of income an individual can earn each tax year without paying income tax. For the tax year 2024/2025, the Personal Allowance is set at £12,570.
Through Marriage Allowance, the partner with the lower income can transfer £1,260 of their Personal Allowance to their higher-earning spouse or civil partner. This transfer is done by making an official claim through Her Majesty’s Revenue and Customs (HMRC). Once the transfer is processed, the recipient partner’s tax liability is reduced.
Reduction of Tax
By transferring a portion of their Personal Allowance to their partner, the lower-earning individual effectively reduces their partner’s taxable income. This reduction results in a lower tax liability for the recipient partner and potential tax savings for the couple as a whole.
The transferred Personal Allowance serves as a credit against the recipient partner’s taxable income, effectively reducing the amount of income subject to taxation at the basic rate. For example, if the recipient partner’s income exceeds their Personal Allowance, the transferred allowance can reduce their taxable income, potentially reducing their overall tax liability.
Calculation of Tax Savings
The amount of tax savings achieved through Marriage Allowance depends on various factors, including the income levels of both partners and the tax rates applicable to their respective earnings. To determine the potential tax savings, couples can use HMRC’s online tax calculator or consult with a tax professional.
For illustration purposes, let’s consider a scenario where one partner has an income below the Personal Allowance (£12,570), while the other partner’s income exceeds it. By transferring £1,260 of the lower-earning partner’s Personal Allowance to the higher-earning partner, they can jointly reduce their taxable income, potentially resulting in lower overall tax payments.
It’s important to note that the partner transferring their Personal Allowance may incur additional tax liability themselves, but the overall reduction in tax payments for the couple can still result in significant savings.
Eligibility for Marriage Allowance
To be eligible for Marriage Allowance, couples must meet certain criteria specified by HMRC. These eligibility requirements ensure that only qualifying couples can benefit from the tax reduction offered by Marriage Allowance.
Married or Civil Partnership
Marriage Allowance is available to couples who are legally married or in a civil partnership. Couples who are living together but not married or in a civil partnership are not eligible for Marriage Allowance.
Income below Personal Allowance
The partner who wishes to transfer their Personal Allowance must have an income below the Personal Allowance threshold. For the current tax year, the Personal Allowance is set at £12,570. If the lower-earning partner’s income exceeds this threshold, they are not eligible to transfer their allowance.
Partner’s Income at Basic Rate
The recipient partner must be a basic rate taxpayer, meaning their income falls within the basic rate tax band. For the tax year 2024/2025, this usually means that their income is between £12,571 and £50,270 before receiving any Marriage Allowance. The recipient partner’s income determines their eligibility to benefit from Marriage Allowance.
Living Together Requirement
While couples living together are not eligible for Marriage Allowance, there is an exception for couples in Scotland. In Scotland, couples must meet additional requirements related to the income tax rates known as the starter, basic, or intermediate rates. The recipient partner’s income must fall within the specified income range for these rates to be eligible for Marriage Allowance.
Special Cases for Scotland
In Scotland, couples eligible for Marriage Allowance must consider the specific income tax rates when determining eligibility. The income thresholds for the starter, basic, and intermediate rates are different from those in the rest of the UK. For the tax year 2024/2025, the income range for these rates in Scotland is between £12,571 and £43,662.
Married Couple’s Allowance
Couples who were born before April 6, 1935, may be eligible for Married Couple’s Allowance instead of Marriage Allowance. Married Couple’s Allowance offers a higher tax reduction but is subjected to different eligibility criteria. Couples in this category should assess their options and choose the allowance that provides the most significant tax benefit.
Backdating Your Claim
In certain circumstances, couples may be able to backdate their claim for Marriage Allowance. Backdating allows couples to include previous tax years in their claim, potentially resulting in additional tax savings. However, specific conditions must be met for a backdated claim to be accepted.
Claiming for Previous Tax Years
Couples can backdate their claim for Marriage Allowance to include any tax year since April 5, 2020. This means that even if they did not claim the allowance in previous years, they can still benefit from it retrospectively. Backdating can be particularly advantageous for couples who have only recently become aware of their eligibility or who have experienced a significant change in their income.
Reducing Partner’s Tax Bill
When backdating a Marriage Allowance claim, the amount of tax that the recipient partner saves depends on the Personal Allowance rate for each year being backdated. The tax savings may vary from year to year, reflecting any changes in tax rates or Personal Allowance thresholds.
It’s worth noting that backdated claims can result in a reduction of the recipient partner’s previous tax bills, effectively reducing the amount of tax owed for those years.
Claiming after Partner’s Death
If the partner who would have been eligible to transfer their Personal Allowance has passed away since April 5, 2020, the surviving partner can still make a claim for the Marriage Allowance. In such cases, the surviving partner should contact the Income Tax helpline to initiate the claim process. If necessary, the person responsible for managing the deceased partner’s tax affairs should make the call.
Stopping Marriage Allowance
Once Marriage Allowance is activated, it continues automatically each tax year unless cancelled by either partner. However, certain circumstances may warrant stopping the allowance, at which point the transfer of Personal Allowance ceases.
Automatic Transfer of Personal Allowance
After the initial application for Marriage Allowance is approved, the transfer of Personal Allowance occurs automatically each tax year. This means the lower-earning partner’s unused allowance is transferred to the higher-earning partner without the need for yearly reapplication.
Cancelling Marriage Allowance
Couples have the option to cancel Marriage Allowance at any time. This may be necessary if there are changes in income or if the relationship ends. To cancel the allowance, one or both partners must inform HMRC of their decision. Cancelling Marriage Allowance does not require an involved process and can be done by contacting HMRC through their designated channels.
How to Apply for Marriage Allowance
Applying for Marriage Allowance is a straightforward process that can be done online or through a printable application form. Understanding the application steps and available resources can help streamline the application process.
Online Application
The most convenient way to apply for Marriage Allowance is through the HMRC website’s online application portal. The online application ensures a faster processing time and offers a user-friendly experience. To apply online, couples should gather the necessary information and follow the step-by-step instructions provided on the HMRC website.
Printable Application
For those who prefer a physical application process or face difficulties with online applications, a printable application form, known as Form MATCF is available on the HMRC website. Couples can download and print form MATCF, fill it out accurately, and then mail it to the designated HMRC address. The printable application option allows for a manual submission but may result in longer processing times compared to online applications. Click here to access form MATCF!
Additional Support
Couples who require additional support or have questions regarding the application process can contact the Income Tax helpline. The helpline provides expert guidance on eligibility, application requirements, and any other concerns related to Marriage Allowance. Seeking assistance from the helpline can help ensure a smooth application experience and clarify any uncertainties.
