What is Marriage Tax Allowance?
Married couples could get a tax break worth up to £1,150, but more than 2.4 MILLION qualifying couples fail to claim marriage allowance.
What is marriage allowance?
Commonly referred to as marriage tax allowance or married couples allowance, it is designed to cut the tax bills of married couples where one party earns significantly more money than the other.
Marriage tax allowance allows the lower earner to transfer £1,250 of their personal allowance (yearly earnings which are not subject to tax) to their husband, wife or civil partner. To do this, the lower earner must have an annual income below their own personal allowance, which is usually £12,500.
A successful marriage allowance claim could see your family pay less in tax over the year, while you can also backdate your claim for up to 4 tax years to see if you are entitled to a marriage tax rebate.
When can you apply for marriage allowance?
Many people assume that marriage tax allowance is available to all married couples, but this isn’t the case.
To qualify for marriage tax allowance:
- You must be married or in a civil partnership.
- One partner must be a non-tax payer (usually earning less than £12,500 a year).
- The other partner must be a basic rate taxpayer (earning between £12,500 & £50,000 a year).
- Both partners must have been born before or after 6th April, 1935.
What is a personal allowance?
A personal allowance determines how much money you can earn in a tax year without paying tax. This is usually £12,500, but in some scenarios, it can be different. You can find this out by logging into your government gateway portal, or viewing any tax code letters you’ve received.
Some examples of individuals with different tax codes include those who owe tax, have a company car or earn a significant amount of money in interest from their savings.
How much can you claim with marriage allowance?
For the tax year 2019/20, the marriage tax allowance is £250 – this is the maximum that can be claimed for a 12-month period.
As well as claiming for the current year, you can claim for up to 4 tax years:
- 2015/16 – £212 (deadline Sunday 5 April 2020)
- 2016/17 – £220
- 2017/18 – £230
- 2018/19 – £238
- 2019/20 – £250
If you are eligible for marriage tax allowance and have never claimed, you could be entitled to up to £1,150. Make sure that any applications for the 2015/16 tax year are submitted by 11.59pm on Sunday 5 April.
How does marriage allowance work?
The person who earns less in a year than their personal allowance can transfer £1,250 of their unused tax-free allowance to their husband, wife or civil partner if they are earning between £12,501 and £50,000 in England and Wales (£43,430 in Scotland). The higher earner will then have a tax-free allowance of £13,750 instead of £12,500.
A man works part-time in a local shop, earning £10,000 a year (£2,500 less than the personal allowance).
This means that he is able to transfer £1,250 of his tax-free allowance to his wife, who works full-time and earns £35,000/year.
Thanks to this, she earns an extra £250 per year because she does not have to pay the 20% tax on an additional £1,250 of her earnings.
What if I have LESS than £1,250 of unused personal allowance?
If you have less than £1,250 of your personal allowance you can still transfer it to your partner, but it gets quite complicated – this is because you are not able to transfer any less than £1,250, it must be that exact amount.
This means that if you transfer the £1,250 tax-free allowance to somebody else, you could end up exceeding your own allowance. This can still work out as a net gain for you and your partner, just not by as much.
For example (following on from the one above):
The man gets a pay rise and now earns £12,000 a year, leaving him with a tax-free allowance of just £500.
To be eligible for marriage tax allowance, he will need to transfer the full amount of £1,250 tax-free allowance to his partner. This reduces his personal allowance to £11,250, meaning that he is now required to pay a tax rate of 20% on £750 of his annual earnings.
While the man’s partner will now earn an additional £250 a year, he will be earning £150 a year less than if he had not transferred the allowance. This still works out as a £100 net income over the year, so whether that is worth it or not is entirely up to you.
READ MORE: Are you due a tax rebate?
When do you receive marriage allowance?
Marriage allowance is not simply a sum of money, but instead a small amount earned every month by adjusting your tax code. The person receiving the additional allowance will earn a slight extra amount in their pay-cheque every month, or if they are in self-assessment, it will reduce the cost of their self-assessment bill.
What is the marriage allowance tax code?
Both partners will receive a new tax code which will reflect the transferred tax-free allowance. The tax code will end with:
- ‘M’ for the person who is receiving the allowance
- ‘N’ for the person who is transferring the allowance
The tax code will also change if you are employed or get a pension.
How to apply for marriage tax allowance
Applying for marriage tax allowance is easy and shouldn’t take any longer than a few minutes – simply use the HMRC marriage allowance tax calculator online. Both parties will need to provide national insurance numbers, while the non-taxpayer (the person transferring their allowance) will also need to provide various forms of ID.
The non-taxpayer should be the one who applies to transfer their allowance – if done the other way around, the application will be declined.
After completing the marriage allowance application form, you will be automatically informed whether or not you are eligible. The process does not have to be repeated every year and the allowance will transfer automatically each year, until you inform HMRC of a change of circumstances (eg. divorce, death or a change of income).
The change of tax code can take up to 2 months to process.