The Marriage Allowance enables eligible couples to receive a government tax break worth more than £200 each year. But many may be deterred from claiming as they believe they earn too much


How does the Marriage Allowance work?

The Marriage Allowance for both married couples and civil partners was introduced in 2015. It lets a non-taxpaying partner give up a portion of their unused allowance to the higher income-earning partner which results in a lower tax bill for the couple. A partner earning less than their Personal Allowance –  £11,500 for 17/18 – elects to give up 10% of this allowance to their taxpaying partner, so long as they pay a basic (20%) rate of tax and earn under £45,000 a year (in England).

To illustrate how this works, take married couple Alan and Beth.

In the current tax year,?Beth’s income is £8,000 while Alan earns £18,000. Beth makes a claim, or ‘election’, to?transfer £1,150 of?her?£11,500 Personal Allowance?(10%) to?Alan.

Her?Personal Allowance is?reduced to £10,350?while Alan receives a 20% tax credit on £1,150.?Beth?still pays no tax after reducing her allowance,?so?the couple will save £230.

The equivalent figures for the coming tax year 2018/19?will be?£11,850 for the Personal Allowance, of which £1,185 is transferable, yielding a tax saving of £237.


You can ‘earn’ more than the Personal Allowance and be eligible

While it is a?legislative requirement that neither spouse is liable to tax at the higher or additional rate, the non-taxpayer can actually have an income well above the Personal Allowance and be eligible for the Marriage Allowance.

The official guidance from the government on this policy gives the impression that the non-taxpaying partner can’t earn more than £11,500. Both the Chartered Institute of Taxation (CIoT) and the Low Incomes Tax Reform Group (LITRG) have?often?tried to get the official guidance changed as it may be putting people off claiming this benefit. However, the government’s web content writers have so far opted for what they regard as ‘simplicity’ at the expense of accuracy in giving the £11,500 Personal Allowance figure as the basis for eligible claims. In the last few years, a number of tax breaks have been introduced at lower income levels which have resulted in more people becoming non-taxpayers. So even if your ‘income’ is above the Personal Allowance, you may still not be liable to tax?in the following cases:

  • You qualify for the zero percent savings?starting?rate

If your earnings or pension income is all within a band consisting of the Personal Allowance plus £5,000, and the remainder is savings income (ie?interest from bank or building society savings), the savings income is taxable at 0% up to that limit.

  • You’re eligible for the ‘Personal Savings Allowance’

This is a zero rate of tax on the first £1,000 of savings income for a basic rate taxpayer, and is available in addition to the zero percent savings starting rate.

  • You’re eligible for the dividend allowance

This is a zero percent rate on?the first £5,000 of dividend income.

  • The trading and property income allowance

This enables you to earn up to £1,000 of trading income or property income in excess of the Personal Allowance, tax-free.

Therefore, if the lower earner’s income is above the Personal Allowance, it may still be worth their while claiming the Marriage Allowance if their tax bill is nil because they are eligible for any of the above tax breaks.

source: Robin Williamson.