Did you know that if your income is less than the tax-free Personal Allowance (£11,500 for 2017/18), HMRC allows you to transfer £1,150 of your Personal Allowance to your wife, husband or civil partner? Known as the Marriage Allowance, this means that as a couple you could save up to £230 in tax this year alone!
To qualify for the Marriage Allowance:
- The lower earning partner’s income must be less than the current Personal Allowance (£11,500 for 2017/18),
- You are married or in a civil partnership,
- The higher earning partner’s income must be at or under the threshold between basic and higher rate tax (£45,000 for 2017/18)
All income is taken into account in the above limits, such as pay, self-employed income, pensions and dividends received.
It’s worth noting that if you or your partner were born before 6th April 1935, you’ll probably be better off claiming the Married Couple’s Allowance instead.
How to Claim
Claims can be submitted online at https://www.gov.uk/apply-marriage-allowance or by phone on 0300 200 3300. The application must be made by the lower earning partner.
When you claim you’ll need one of the following:
- the last 4 digits of the account that your child benefit, tax credits or pension is paid into,
- the last 4 digits of an account that pays you interest,
- details from your P60,
- details from any of your 3 most recent payslips,
- your passport number and expiry date.
HMRC will automatically backdate new claims to the start of the current tax year. However, you can backdate your claim to include any tax year from 2015/16 onwards (i.e. from 6th April 2015) in which you met all the eligibility criteria. The value of Personal Allowance transferred was £1,060 in 2015/16 and £1,100 in 2016/17. Across all three years to date, this adds up to a possible total saving of £662!
Receiving the Additional Tax Allowance
If the higher earning partner is employed or receives a pension, they’ll receive the additional tax allowance by HMRC adjusting their tax code. An M will also be added to the end of their tax code to show that £1,150 of their partner’s Personal Allowance has been transferred to them. For 2017/18, the numerical part of their tax code should increase by 115, e.g. a tax code of 1150L will become 1265M.
The lower earning partner’s tax code will also change, reducing by the same value, and include an N added at the end. For example, a 2017/18 tax code of 1150L will become 1035N to show that they’ve transferred £1,150 of their Personal Allowance to their partner.
HMRC advise that it can take up to two months for the tax code changes.
If the higher earning partner’s income is from a mix of sources (e.g. some salary and some pension) but their primary income source is less than their increased Personal Allowance, we’d recommend that they register to complete a tax self-assessment return. Not doing so means that they may pay more tax than they have to (we’ll cover this in more detail in a future blog!)
If the higher earning partner is self-employed, then they’ll receive their additional tax allowance when they submit their tax return.
There are very limited circumstances when you might be worse off claiming the Marriage Allowance. This is when
- the higher earning partner’s income is less than £1,150 more than their Personal Allowance (e.g. less than £12,650 if their 2017/18 tax code is 1150L) ,
- the lower earning partner’s income is more than their Personal Allowance less £1,150 (e.g. more than £10,350 if their 2017/18 tax code is 1150L).
In these circumstances, an individual calculation is needed to confirm if claiming would be to your advantage. You can do this using a calculator on the HMRC website https://www.tax.service.gov.uk/marriage-allowance-application/benefit-calculator/ .
Your Personal Allowance is generally the numerical part of your tax code multiplied by 10, e.g. a tax code of 1170L has a Personal Allowance of £11,700. However this isn’t the case if your tax code starts with a K, and in that case we would recommend you seek professional advice.
Change of Circumstances
Either partner can cancel the Marriage Allowance claimed:
- if cancelled by the lower earning partner, the claim will finish at the end of the current tax year.
- If cancelled by the higher earning partner, the claim will be stopped from the start of the first tax year when it was first received, i.e. as if it had never been claimed!
If the Marriage Allowance claim is cancelled by the lower earning partner due to divorce or their partnership being dissolved, they can ask for the cancellation to be backdated to the start of the current tax year.
Should one partner die, how any existing claim for Marriage Allowance would be treated depends on which partner passed away.
We hope this has been useful and might save you or someone you know some tax – if you have any questions or comments, we’d love to hear from you!