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UNDERSTANDING MARRIAGE TAX ALLOWANCE

The Marriage Tax Allowance is a less well-known fact, one of the easiest ways to transfer a percentage of Personal Allowance (the tax-free amount earned every year) from one person to another providing they are either married or in a civil partnership. This Allowance could cut down the tax bill of a couple by £220  for the tax year 2015/16. Individuals can claim the Allowance providing that the following points hold true:

  • They are part of a civil partnership or a marriage;
  • If living with their civil partner or spouse;
  • Either of the couple was born before 6 April 1935;
  • Either of the couple earns no income or earns below £11,000;
  • Either partner’s income is between £11,001 and £43,000;
Marriage Tax Allowance

Individuals can still claim the Married Couple’s Allowance if they are unable to live with their civil partner or spouse, due to:

  • An armed forces posting
  • A prison sentence
  • Illness or old age, e.g. where the partner or spouse is in residential care
  • Training or education
  • Working away from home

For marriages that took place before 5 December 2005, the husband’s income is used to compute the Allowance amount. For civil partnerships and marriages post this date, the earnings of the highest earner are taken into account. If the two people of the civil partnership or marriage were born on, or post-6 April 1935, the couple may be able to claim the Allowance. Couples can claim the Allowance on a pro-rata basis for the remainder of the year after the date of the marriage or registration of the civil partnership. The Allowance continues for the remainder of the tax year when either one of the partners dies or if the couple parts ways. However, if the separation occurs due to circumstances other than a formal decision to part ways, the couple can still claim the Married Couple’s Allowance. The Married Couple’s Allowance calculator will compute the amount for which a couple is eligible.

How does the Allowance work?

Marriage Allowance allows the higher earning person in a marriage of civil partnership to transfer £1,100 of their Personal Allowance to their spouse or civil partner, thus reducing tax by up to £220 in the tax year. To take advantage as a couple, either one of the couple must have an income of £11,000 or less. If a couple was eligible for the Allowance in the tax year 2015 to 2016, but did not claim it, they can backdate the claim to 6 April 2015 and cut the tax payable by up to £432 in the 2016/17 tax year. A couple can apply for the Allowance if either partner receives a pension or spends a period abroad and has a Personal Allowance.

This may seem confusing, but a couple can cut down on their payable tax by £432. Here is how it works: the Marriage Allowance began on 6 April 2015, and was worth £212 for that year. For the new tax year starting April 2016, it will be worth £220. Thus, combining the two, many get the marriage tax allowance of £432. Either of the partners who have an idle Personal Allowance sum can transfer £1,100 of their Personal Allowance to the other (so essentially it is 10% of the total Allowance). It doesn’t matter if the unused Allowance is £5,000 or £500; they are only eligible to transfer £1,100. Let’s get a grip of this with an example:

Example
A part-time worker, John, earns £5,000 and his full Personal Allowance per annum is £11,000. In this case, John has ample unused Allowance to transfer £1,100 to his wife, Jill. On the other hand, John’s wife, Jill, is a full-time software developer. Jill earns £35,000 and is a basic-rate taxpayer. When John opts to transfer his allowance to Jill, her Personal Allowance increases by £1,100 to £12,100, so she’s up £220 (20% of £1,100), an extra £1,100 on which she would have had paid tax, but which is now hers tax-free under the Marriage Allowance rules.

Applying for Marriage Allowance

Before applying for Marriage Allowance, both the partners need to have a National Insurance number. They also need proof of identity. This can be one of the following:

  • The last 4 digits of the account that the tax credits, child benefit, or pension is paid into;
  • The last 4 digits of an account that pays the interest;
  • Details from form P60;
  • Details from the last three pay-slips;
  • Passport number and expiry date.

An email confirmation of the application will arrive. If the application is successful, changes to the Personal Allowances will be backdated to the beginning of the tax year (6 April). HMRC will transfer extra Allowance either:

  • By altering their tax code, typically to 1166M – this process can take up to two months;
  • If self-employed, when the self assessment tax return is filed;

The tax code will change if either person in the couple is employed or receiving a pension. The new code will reflect the new Personal Allowance, ending with ‘N’. If the Marriage Allowance stops, the Personal Allowance will automatically transfer to the partner every year until one of the couple cancel the Marriage Allowance, or if the circumstances change, e.g. in the case of a death or because of divorce.

How to claim

For individuals filling in a self-assessment tax return every year, a claim is made by completing the Married Couple’s Allowance section of the tax return. In cases where neither partner fills in a self-assessment tax return, they can contact HMRC with details of their civil partnership ceremony or marriage, or provide details of the civil partner or spouse – including their date of birth.

ADDITIONAL INFORMATION

If a civil partner or spouse pays tax, any Married Couple’s Allowance can be transferred that hasn’t already been used, either because one of the partners doesn’t pay tax, or the tax bill isn’t high enough. Fill in form 575 online or ask HMRC to post a copy. Also, share or transfer the Married Couple’s Allowance before the tax year begins and fill in form 18 when the tax year starts. As stated earlier, in a civil partnership or marriage, both can:

  • Share the minimum Marriage Tax Allowance;
  • Transfer the whole of the minimum Marriage Tax Allowance from one to the other.

Allowance limits

Upper and lower limits for higher age-related Married Couple’s Allowance

Age of recipient

Age of civil partner or spouse

Lower limit 2015?16

Upper limit 2015?16

Lower limit 2016?17

Upper limit 2016?17

Under 66  

Under 81

NA

NA

NA

NA

Under 66

81 or above

27,700

£37,970

27,700

£37,970

66 to 79

Below 81

NA

NA

NA

NA

66 to 79

81 or above

£27,700

£37,970

£27,700

£37,970

81 or above

Any age

£27,820

£38,090

£27,700

£37,970

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