Marriage Tax Allowance

August 03, 2017 | Posted by Lynn Eccleston

Marriage Tax Allowance

Overview

A great number of eligible couples are missing out on the Marriage Tax Allowance introduced by former Prime Minister David Cameron, which could provide couples with an opportunity to transfer a portion of personal allowance between spouses. It may also be possible to receive windfall payments for previous tax years from the introduction of this allowance in April 2015.

The introduction of this allowance backs up the notion that the Government supports the institute of marriage, believing that marriage encourages a stable family. Furthermore, the transfer of personal allowance from the non-tax payer to the higher earner also encourages one of the two to be a ‘homemaker’ rather than in full time employment.

Are we eligible to apply?

To meet the eligibility criteria, you must meet the following specific circumstance:

  • Married or in a civil partnership
  • One of the individuals being a non-tax payer & the other being a basic rate tax payer
  • Both individuals must be born on or after 6th April 1935, otherwise another allowance may be available: Married Couples Allowance

Who misses out?

  • Cohabiting couples
  • Higher and additional rate tax payers
  • Lowest earner above the personal allowance

If you’re unsure whether you qualify for this tax allowance you can use the gov.uk eligibility check:

Online Eligibility Check

If the lower earners remaining personal allowance is below £1,150 (gross taxable earnings above £10,350) this may reduce the level of tax breaks. This calculator will help you see if it’s worth applying for:

Marriage Allowance Benefit Calculator

If a couple fall in this bracket it may be worth restructuring earnings in a number of different ways. Also, if the higher earner is in the higher-rate tax bracket, is there scope for salary sacrifice with your employer? This would increase pension contributions and drop your salary into the basic rate band. This is quite a complex area that would require advice before undertaking and is outside the scope of this article.

Claiming the tax allowance

If you’re an eligible couple and would like to apply, you can do this with an online application form via HMRC. You’ll receive email confirmation immediately once the application is complete. When going through the application process you’ll need your National Insurance numbers for both partners, as well as another form of Identification.

It is important to note that the non-taxpayer must apply for their personal allowance to be transferred to the higher earner, not the other way round. If the application is done the other way the claim won’t be successful.

Q&A

Can we back date? Yes, you can back date for the previous 4 tax years, however, this was only introduced for tax year 2015/16 so can’t go back beyond this date. Previous years payments are paid via cheque and an adjustment of the higher earners tax code is changed for the current tax year in which the application is made. Thus, there is no cut off date.

Do we have to apply each tax year? No, once the application has been successful your personal allowance will be transferred to your partner automatically each year. It then becomes your responsibility to inform HMRC of a change in circumstance. Divorce or dissolve of a civil partnership would be an example of when you should contact them.

Self-Employed? This doesn’t affect your eligibility, you can still apply if one or both of you are self-employed. If the recipient partner is self-employed this will reduce their self-assessment bill rather than the PAYE for an employed individual.

Does savings interest affect earnings? Yes, however, there are tax breaks for lower earners. Non-taxpayers & basic rate tax payers will benefit from a personal savings allowance of £1000 meaning this amount of savings interest is tax free and doesn’t fall under taxable earnings income.

If you’d like to discuss any of the above or would like a free consultation on your financial position get in touch with us. 01772 750055 or via email: mail@bailey-fs.co.uk

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