How does the marriage tax allowance work?
Using the marriage tax allowance can reduce your tax bill. Here’s how it works.
Reducing your tax bill gives you more money in your pocket, which is always a good thing. If you’re married or in a civil partnership, you could be eligible for the marriage allowance, which lets you transfer part of your tax-free allowance to your partner. Here’s how it works.
What is the marriage allowance?
If you’re eligible for the marriage allowance, you can transfer £1,260 of your personal tax allowance to your spouse or civil partner. Your allowance is the amount you can earn before you pay tax, which is usually £12,570.
Transferring your allowance increases your spouse or partner’s personal tax allowance. It can save them up to £252 per year by allowing them to earn more before they start paying tax. Give us a call for advice if you’re considering using the marriage allowance, as we can explain the pros and cons and help you make an informed decision.
Next, let’s look at HMRC’s eligibility criteria for using the marriage allowance to see whether you qualify.
Eligibility requirements
There are three main eligibility requirements if you want to use the marriage allowance.
Firstly, you must be married or in a civil partnership. Cohabiting or ‘common law’ marriages aren’t recognised for the purposes of the marriage allowance.
Secondly, the lower earner’s earnings must be lower than their personal allowance. This can vary depending on your circumstances. For example, you might have one partner working while the other stays at home, so they don’t bring in any income. However, you can still qualify if your spouse or civil partner has a part-time job, as long as they earn less than £12,570 per year.
Finally, the marriage allowance is only available to basic-rate taxpayers. If the higher earner pays higher rate or additional rate income tax, you won’t be eligible to use the marriage allowance.
You can still claim marriage allowance if one or both of you receive payments from a pension, or if you live abroad, as long as you still have a personal tax allowance in the UK.
Can you backdate your claim?
The good news is that if this is the first time you’ve heard about the marriage allowance, you can backdate your claim to 6th April 2022, as long as you were eligible in those years. HMRC will apply the personal allowance that was in place in each year to update your and your partner’s tax bills.
This applies even if your partner has died since then. We can help you with the process so please get in touch.
How to apply
The simplest way to apply is to give us a call and let us handle the process for you, along with your tax return. The application process is different depending on whether you’re registered for a self-assessment tax return, want to backdate your claim, or want to start using the marriage allowance for the current tax year.
The person who earns the least needs to claim. If your income is complex or comes from various sources, such as a mixture of salary, dividends and other income, we can help you work out who should claim. If you both submit self-assessment tax returns, there are some time limits to consider, but we can ensure you comply with them. If you receive a salary, you’ll notice changes to your tax code depending on whether you’re transferring your allowance or receiving the transfer.
What to do if your circumstances change
A change in circumstances may mean you’re no longer entitled to the marriage allowance. For example, you’re only entitled to the marriage allowance if you’re married or in a civil partnership, so if you divorce, dissolve your partnership or file for legal separation, your entitlement will end. In those circumstances, either of you can apply to cancel your marriage allowance, and we can do it for you.
Your entitlement might also end because your income changes. If your partner has been at home or working part-time caring for young children and returns to full-time work when they’re older, their income may increase and exceed their personal allowance. You might also decide that you no longer want to apply for another reason. We can advise you on the most tax-efficient approach if you’re considering this. In those circumstances, the person who originally made the claim, or their representative, needs to apply to cancel.
Whatever stage you’re at with your tax return, we’re here to help. Book a free consultation now by calling 01664 508700.