Married? HMRC wants to give you a £400 tax break
The Marriage Allowance was introduced in April 2015, allowing the individual who earns less than their personal allowance to transfer a small percentage to their partner. This boosts the receiving partner’s personal allowance, meaning they can earn more before they start to pay tax.
Around 4.2 million married and civil partner couples are eligible for the tax break – worth up to £432 – but HM Revenue & Customs (HMRC) reports that as of this morning only 1.34 million have applied.
Surprisingly, 258 couples applied on Christmas Day, while 1,046 applied on New Year’s Eve.
However, there are still around two million couples who are missing out and HMRC wants to give you the tax break.
How the Marriage Allowance works
The current personal allowance is £11,000 and it’s the individual who is earning up to this amount who needs to apply online for the Marriage Allowance.
You can apply as long as the partner receiving the increased allowance is a basic rate tax payer, even if they’re self-employed, so higher and additional rate tax payers aren’t eligible (those earning above £43,000).
The Marriage Allowance lets you transfer 10% of your 11,000 personal allowance to your partner so that they have an additional £1,100 allowance before they start paying tax.
Usually any income above the personal allowance is taxed at your marginal rate. But as part of the government’s move to ‘reward marriage’, the additional £1,100 allowance that they would have paid 20% basic tax on is now tax-free, meaning they save £220 this year.
However, if you were eligible for the Marriage Allowance in the 2015/16 tax year, you can make a backdated claim.
In the previous tax year, the personal allowance was £10,600 so you could have transferred £1,060 to your partner, meaning they could cut their tax bill by £212.
When you apply online, there’ll be a section asking if you want to backdate the claim. If you register for a personal tax account, the 2015/16 payment can be paid through your bank account as a lump sum. Otherwise, it will be paid in the form of a cheque posted to the applicant.
For the 2016/17 tax year, your tax code will be adjusted if you’re in PAYE. For the self-employed applicant, this amount should be taken into consideration when you come to do your tax return.
It can take some weeks for the allowances to be altered and for tax codes to be amended.But in total, you could reduce your spouse’s tax bill by £432. This applies even if you currently receive a pension or you live abroad, as long as you still get a personal allowance.
Is the Marriage Allowance the same as the Married Couple’s Allowance?
The marriage allowance is separate to the married couple’s allowance. The latter could reduce your tax bill by between £322 and £835.50 a year.
But one of you must be born before 6 April 1935. If you and your partner were born on or after 6 April 1935 you’ll be eligible for the Marriage Allowance as detailed above.