You can earn more than you think and be eligible for the Marriage Allowance
A non-taxpayer can ‘earn’ above £11,500 a year for 2017/18 – as much as £23,500 – while their spouse or civil partner needs to be a basic rate (20%) taxpayer in order to claim the Marriage Allowance.
How does the Marriage Allowance work?
The Marriage Allowance for both married couples and civil partners was introduced in 2015. It lets a non-taxpaying partner give up a portion of their unused allowance to the higher income-earning partner which results in a lower tax bill for the couple.
A partner earning less than their Personal Allowance – currently £11,500 – elects to give up 10% of this allowance to their taxpaying partner, so long as they pay a basic (20%) rate of tax and earn under £45,000 a year (in England).
To illustrate how this works, take married couple Alan and Beth.
In the current tax year, Beth’s income is £8,000 while Alan earns £18,000. Beth makes a claim, or ‘election’, to transfer £1,150 of her £11,500 Personal Allowance (10%) to Alan.
Her Personal Allowance is reduced to £10,350 while Alan receives a 20% tax credit on £1,150. Beth still pays no tax after reducing her allowance, so the couple will save £230.
The equivalent figures for the coming tax year 2018/19 will be £11,850 for the Personal Allowance, of which £1,185 is transferable, yielding a tax saving of £237.
You can ‘earn’ more than the Personal Allowance and be eligible
While it is a legislative requirement that neither spouse is liable to tax at the higher or additional rate, the non-taxpayer can actually have an income well above the Personal Allowance and be eligible for the Marriage Allowance.
The official guidance from the government on this policy gives the impression that the non-taxpaying partner can’t earn more than £11,500.
Both the Chartered Institute of Taxation (CIoT) and the Low Incomes Tax Reform Group (LITRG) have often tried to get the official guidance changed as it may be putting people off claiming this benefit.
However, the government’s web content writers have so far opted for what they regard as ‘simplicity’ at the expense of accuracy in giving the £11,500 Personal Allowance figure as the basis for eligible claims.
In the last few years, a number of tax breaks have been introduced at lower income levels which have resulted in more people becoming non-taxpayers. So even if your ‘income’ is above the Personal Allowance, you may still not be liable to tax in the following cases:
- You qualify for the zero percent savings starting rate
If your earnings or pension income is all within a band consisting of the Personal Allowance plus £5,000, and the remainder is savings income (ie interest from bank or building society savings), the savings income is taxable at 0% up to that limit.
- You’re eligible for the ‘Personal Savings Allowance’
This is a zero rate of tax on the first £1,000 of savings income for a basic rate taxpayer, and is available in addition to the zero percent savings starting rate.
- You’re eligible for the dividend allowance
This is a zero percent rate on the first £5,000 of dividend income.
- The trading and property income allowance
This enables you to earn up to £1,000 of trading income or property income in excess of the Personal Allowance, tax-free.
Therefore, if the lower earner’s income is above the Personal Allowance, it may still be worth their while claiming the Marriage Allowance if their tax bill is nil because they are eligible for any of the above tax breaks.
Claims can be backdated and applied to deceased spouses
The first year for which Marriage Allowance can be claimed is the tax year 2015/16.
The procedure for claiming is quite simple – the transferring spouse should ring the income tax helpline on 0300 200 3300, quoting their National Insurance number. Or they can file a tax return.
Before 29 November 2017, parties had to be married to, or in a civil partnership with, each other at the time the lower earning spouse transferred his or her allowance to the other.
So if one of them had died, the claim couldn’t be made. At LITRG, we received many letters and emails complaining this was unduly harsh, particularly if the first time the possibility of claiming the allowance came to light was when the estate of the deceased partner was being wound up.
We therefore made representations to HMRC and the Minister, as a result of which the November 2017 Budget announced the law would be changed for claims made on and after 29 November 2017.
It now allows the personal representatives of a deceased partner to make a transfer of one-tenth of his or her Personal Allowance for a tax year during which the deceased was still alive, including the tax year of death.
Similarly, the surviving partner may make a transfer to the personal representatives of their deceased partner. Like other income tax claims and elections, it can be backdated by up to four years so that every year from 2015/16 is covered provided the claim is made before 6 April 2020.
Therefore, if the personal representatives of a deceased spouse have tried claiming in the past but were rejected by HMRC, they should claim again.
The ‘other’ marriage allowance
If you or your spouse were born before 6 April 1935, you may be eligible to claim the Married Couple’s Allowance (MCA). This is a historical allowance, having been retained by Gordon Brown when Chancellor of the Exchequer after he had abolished it for younger couples. (The funding for the MCA was re-used in the children’s tax credit in 2001/02 and 2002/03, then child tax credit from 2003/04.)
It is not possible to claim both the MCA and the Marriage Allowance, but for those who are eligible, the MCA is the more beneficial.
Robin Williamson MBE is a fellow of the Chartered Institute of Taxation and technical director of the Low Incomes Tax Reform Group (LITRG), an initiative of the CIOT to give a voice to the unrepresented taxpayer.
In response, an HMRC spokesperson, said: “Our guidance on the Marriage Allowance covers most circumstances but we know everyone’s different so we’ve also put in place more information for those with additional income.”
Guidance about savings and dividend income can be found at https://www.gov.uk/income-tax-rates.