Have you heard about Marriage Allowance and wondered how it could benefit you and your partner? Whether you’re newly married or have been in a civil partnership for years, this tax relief could offer significant financial advantages. By understanding how Marriage Allowance works, you can make informed decisions about your finances and potentially save money.
How It Works
Marriage Allowance allows you to transfer part of your Personal Allowance to your spouse or civil partner. Your Personal Allowance is the amount of income you can earn each year before you start paying Income Tax. For most people, this amount is £12,570 for the tax year 2024-2025. By transferring up to £1,260 of your Personal Allowance to your partner, you can reduce their tax liability and save money as a couple.
To better understand this, let’s look at how it functions:
| Year | Personal Allowance | Transferable Amount |
|---|---|---|
| 2022-2023 | £12,570 | £1,260 |
Eligibility Criteria
To qualify for Marriage Allowance, you must meet certain requirements. Both partners need to fulfill the following conditions:
- You are married or in a civil partnership.
- You do not pay Income Tax or your income is below your Personal Allowance (usually £12,570).
- Your partner pays Income Tax at the basic rate, which usually means their income is between £12,571 and £50,270 before they receive Marriage Allowance.
For Scotland, the criteria vary slightly. Your partner needs to pay the starter, basic, or intermediate rate, generally indicating an income ranging from £12,571 to £43,662.
Moreover, living abroad or currently receiving a pension does not affect your eligibility, as long as you are entitled to a Personal Allowance.
Example Calculation
To make the savings crystal clear, consider this example:
- Your income: £11,000
- Your Personal Allowance: £12,570
- Partner’s income: £20,000
- Partner’s Personal Allowance: £12,570
In this case, you pay no tax initially, whereas your partner pays tax on £7,430 (their taxable income). When you transfer £1,260 of your Personal Allowance to your partner, your Personal Allowance reduces to £11,310. Consequently, you’ll pay no tax, but your partner will now only pay tax on £6,170.
By doing so, your combined taxable income drops to £6,170 from £7,430, saving you £252 as a couple in Income Tax.
Application Process
Applying for Marriage Allowance is straightforward. You can opt to do it online, which is often the quickest and most convenient method.
Steps to Apply
Here’s a step-by-step guide to help you through the process:
- Gather Required Information: Ensure you have both National Insurance numbers and one of the following for the non-taxpayer: P60, payslips, passport number, or information about the non-taxpayer’s bank account.
- Visit the GOV.UK Website: Head to the official Government website and look for the Marriage Allowance section.
- Complete the Online Form: You’ll need to fill out some basic information about you and your partner, including your marriage or civil partnership details.
- Submit Your Application: Once you’ve filled out the form, review your details and submit your application.
- Confirmation: Upon successful submission, you’ll receive a confirmation. Note that it can take some time for the transfer to reflect in your tax account.
What Happens Next?
Once you’ve applied, the lower earner’s Personal Allowance will be automatically transferred to the higher earner every year until you cancel the Marriage Allowance. This ensures continuous financial benefits without needing to reapply every year.
If Your Circumstances Change
Life is unpredictable, and your financial circumstances may change over time. It’s essential to keep this in mind when dealing with Marriage Allowance.
Change in Income
If your income increases above the Personal Allowance threshold, you should reconsider your Marriage Allowance. Since your tax situation changes, the benefits may diminish, and you might even end up paying more taxes. Conversely, if the higher earner’s income exceeds the basic tax rate limit, it might be time to reevaluate the situation.
End of Relationship
If your relationship ends, whether through separation, divorce, or death, you must notify HM Revenue and Customs (HMRC). This will halt the automatic renewal of the Marriage Allowance, ensuring your Personal Allowance reverts to its original amount.
Moving Abroad
If you or your partner move abroad, it will not generally affect your allowance, provided you continue to receive a Personal Allowance.
Receiving Other Incomes
Whether receiving dividends, savings, or other benefits, these other incomes might influence your eligibility for the Marriage Allowance. In such cases, it is advisable to contact the Income Tax helpline for assistance in calculating your applicable tax benefits.
Who Should Not Apply
Marriage Allowance has its limitations and is not suitable for everyone. Understanding who should refrain from applying is essential to avoid any financial pitfalls.
Not Married or in a Civil Partnership
If you’re living together but not officially married or in a civil partnership, you cannot benefit from Marriage Allowance. The scheme is explicitly designed for legally recognized relationships.
Higher Income Earners
If the spouse or partner’s income exceeds the higher-rate tax threshold, the benefits of Marriage Allowance no longer apply. You might even face additional complexities in your tax calculations.
Using Other Allowances
If you or your partner was born before April 6, 1935, you may find more benefit in opting for the Married Couple’s Allowance rather than the Marriage Allowance. Note that you cannot apply for both at the same time.
Backdating Claims
One of the hidden gems of Marriage Allowance is the ability to backdate your claims. You can backdate your claims to any tax year since April 6, 2020, provided you were eligible during those years.
How to Claim Retroactively
To backdate your claims:
- Eligibility Check: Ensure you met the eligibility criteria in the past tax years.
- Contact HMRC: You can apply online or call the Income Tax helpline to request backdating.
- Submission: Provide necessary details and submit your claim.
- Confirmation: Await confirmation and subsequent reduction in the partner’s tax bill.
Automatic Update
Once you make a claim, your partner’s tax situation will be automatically updated to reflect the benefits across the backdated period. The tax savings will adjust depending on the Personal Allowance rate for those specific years.
Cancelling Marriage Allowance
If circumstances change and you feel you no longer need the Marriage Allowance, you can always cancel it.
Steps to Cancel
- Visit the GOV.UK Website: Head to the Marriage Allowance section.
- Fill Out Cancellation Form: Complete the necessary details for cancellation.
- Submit Form: Submit your request online or by contacting the Income Tax helpline.
- Confirmation: Receive a confirmation of the cancellation.
Cancellation ensures that your Personal Allowance reverts to its original amount, and the automatic transfers stop.
Reapplying
If circumstances change again, you can always reapply for Marriage Allowance. The application process remains the same, and HMRC will reassess your eligibility and update your respective tax accounts.
Key Takeaways
Benefits Overview
Understanding the core benefits and mechanics of Marriage Allowance can lead to informed decisions and potential financial savings for couples who qualify.
| Aspect | Benefit |
|---|---|
| Financial Savings | Potential to save up to £252 per year in Income Tax. |
| Backdating Claims | Ability to backdate claims to April 2020, maximizing tax benefits. |
| Continuous Benefit | Automatic renewal ensures ongoing financial advantage year after year. |
| Flexibility | Easy cancellation and reapplication options to adapt to changing circumstances. |
Steps Summary
- Eligibility Check: Ensure both partners meet the criteria.
- Application: Apply through the GOV.UK website.
- Monitor Circumstances: Regularly review eligibility based on income and personal circumstances.
- Backdate Claims: Consider backdating to maximize benefits if eligible.
- Cancellation: Know how and when to cancel the allowance if needed.
By being well-informed about the benefits and processes involved in Marriage Allowance, you and your partner can make the most of this opportunity and potentially enjoy significant tax savings. If you have any questions or need further assistance, contacting HMRC or seeking advice from a tax professional can provide clarity tailored to your specific situation.
