With the announcement of the royal wedding we got to thinking about the highly underutilised Marriage Allowance, which many more couples could be taking advantage of.
In 2013 the then Chancellor of the Exchequer, George Osbourne, announced that the Marriage Allowance would be rolled out from April 2015. Aimed at married couples or civil partnerships where one person has a low income, the Marriage Allowance allows the transfer of up to 10% of the Personal Allowance (£11,500 for the 2017/18 tax year) to the main breadwinner. For the current tax year this is a potential tax saving of £230.
With the confirmation from Phillip Hammond in the recent Budget that the Personal Allowance will rise to £11,850 for the 2018/19 tax year, comes an increase in the Marriage Allowance to £1,185 from April 06 2018, a potential saving of £237.
Applying for the Marriage Allowance is simple and can be done online, but this seems to have gone unnoticed by many. In fact, HMRC estimates that of the 4 million eligible couples, only half are claiming the allowance.
There are three conditions, and you must meet them all, in order to claim the Marriage Allowance;
- You are married or in a civil partnership, and;
- You earn less than £11,500 (non taxpayer), and:
- Your partner’s income is between £11,500 and £45,000 (basic rate taxpayer)
For example, Mr Jones earns a salary of £30,000 and Mrs Jones is raising their son. They would see Mr Jones’ standard £11,500 Personal Allowance increase to £12,650, and Mrs Jones’ Personal Allowance reduce from £11,500 to £10,350.
Whilst the allowance was aimed at couples where one partner is at home like Mrs Jones, it benefits all married couples and civil partners who qualify. We often find it can benefit retired couples relying on the pension income of one spouse.
If you are in the latter camp and reading this with interest, don’t forget that if you were both born before 6 April 1935 the Married Couples Allowance is likely to provide a greater benefit than the Marriage Allowance.
How Long Does It Last?
Once set up, the Marriage Allowance will automatically be transferred each year until either you or your partner cancel or until you no longer qualify. You will no longer qualify if you cancel the allowance, or get divorced, or on death, or if you no longer meet the earnings criteria.
What If The Higher Earner Earns More Than £45,000?
You will no longer qualify and will each revert to the standard £11,500 allowance.
What If The Lower Earner Earns More Than Their Reduced Personal Allowance?
The Marriage Allowance remains in place unless earnings exceed £11,500. Earnings between the reduced allowance of £10,350 and £11,500 will be taxed at 20%. However as the higher earning spouse benefits from the transferred Personal Allowance and therefore pays less tax on their income, the combined position as a couple should be no worse off.
How Do I Cancel The Allowance?
You can cancel the allowance at any time and this can be done online, there are some specifics to be aware of when cancelling. If you are currently transferring your allowance to your spouse you can choose to keep transferring until the end of the year, or backdate the change to the start of the tax year. If you are receiving the allowance and ask for it to be cancelled the allowance will run until the end of the tax year in which you cancel, you don’t have the option to backdate it.
It’s Not Too Late
If you would have qualified for the Marriage Allowance in 2015/16 or 2016/17 but just didn’t know about it, you will be pleased to know that you can backdate your claim and HMRC will refund you any overpaid tax.
The application process is simple and can be done online here.
Whilst something tells us HRH the Price of Wales and Ms. Markle won’t be able to take advantage of this, for those of you who can it is quick and easy to do so.