Those in a marriage or civil partnership may be pleased to know there is a potential tax break you could be taking advantage of. This tax break is known as Marriage Allowance, but how does it work, and who is eligible?

What is Marriage Allowance?

Marriage Allowance is a form of tax break that can reduce the total amount of tax a married couple or civil partnership has to pay between them in a given year. This allowance is only available to couples where one partner has an income below their personal tax-free allowance (usually £12,570), and the other partner is a basic rate taxpayer.

The allowance lets the partner who is earning less transfer £1,260 of their personal allowance to their husband, wife, or civil partner who earns more, thereby reducing the amount of taxable income they have.

This works out as in the following example from GOV.UK:

  • Your income is £11,500 and your Personal Allowance is £12,570, so you do not pay tax.
  • Your partner’s income is £20,000 and their Personal Allowance is £12,570, so they pay tax on £7,430 (their ‘taxable income’). This means as a couple you are paying Income Tax on £7,430.
  • When you claim Marriage Allowance, you transfer £1,260 of your Personal Allowance to your partner. Your Personal Allowance becomes £11,310 and your partner gets a ‘tax credit’ on £1,260 of their taxable income.
  • This means you will now pay tax on £190, but your partner will only pay tax on £6,170. As a couple you benefit, as you are only paying Income Tax on £6,360 rather than £7,430, which saves you £214 in tax.

In the current tax year (2021-22), this reduces the tax of the higher earner by up to £252 for the year. If you have been eligible for the allowance for up to the past 5 years, you can backdate your claim to receive a pay-out.

How can Marriage Allowance help couples?

In most cases, Marriage Allowance can simply allow eligible couples to save money each year, because the higher earner will pay slightly less tax, and this can be backdated to receive a pay-out via bank transfer or a cheque.

In some cases, the lower earner may end up having to pay a very small amount of tax as a result of having their tax-free allowance lowered, but the savings made by the higher earner will usually offset this, resulting in an overall saving for the couple.

There would only be one situation where an eligible couple would not benefit from Marriage Allowance and actually make a loss. This would be the case if the non-taxpayer was only just below their personal allowance threshold and the higher earner was earning only slightly above their personal threshold.

In this situation, the tax paid by the lower earner may not be offset by the saving of the higher earner. This is why it is important to calculate how much tax you could save as a couple before you officially apply for the allowance.

What is the difference between Marriage Allowance and Married Couple’s Allowance?

A similar tax break is available for married or civil partnership couples where one of the partners was born before 6th April 1935. This is known as Married Couple’s Allowance and can reduce the tax bill of eligible couples by between £353 and £912.50 a year.

Married and civil partnership couples where both partners were born after 6th April 1935 are not eligible for Married Couple’s Allowance and must apply for Marriage Allowance instead, provided they meet the eligibility criteria. It is not possible to get Marriage Allowance and Married Couple’s Allowance at the same time.

Who is eligible for Marriage Allowance?

Marriage Allowance is only available to couples where one of the partners does not pay Income Tax or their income is below their Personal Allowance (usually £12,570), and the other partner pays Income Tax at the basic rate, which in most circumstances means that they earn between £12,571 and £50,270.

For couples in Scotland, the higher earner must pay the starter, basic or intermediate rate on their Income Tax, which typically means they earn between £12,571 and £43,662.

Marriage Allowance is only available to married couples or couples in a civil partnership who live together, not just couples who cohabit.

It is also important to know that it is the lower earner or non-taxpayer who must apply for Marriage Allowance and the higher earner cannot do this on their behalf.

If you are eligible for Marriage Allowance and successful in your claim, you only need to apply once and will automatically get the tax break each year going forward, providing your situation doesn’t change in a way that makes you ineligible.

Changes such as divorce, death or a change in earnings that bring the non-taxpayer above their Personal Allowance must be declared to HMRC.

Backdating a claim

If you have been eligible for Marriage Allowance during the previous four tax years, then you can enter this information on your claim to receive a pay-out for each year that both partners in the marriage or civil partnership were eligible.

If you want to claim for the 2017/18 tax year, which is currently the furthest you can backdate your claim, then you will need to do so by 5th April 2022. A soon as the new tax year begins, the furthest year you will be able to backdate your claim will be 2018/19.

Marriage Allowance can provide some welcome tax relief for eligible couples, so it is definitely worth looking into if you think you may be eligible. You can calculate how much your tax relief will be as a couple on the HMRC website and, in most cases, it will result in a saving.

If you are looking for assistance with your personal tax and accounting, you can view our services or get in touch with us.