Are you married or in a civil partnership? If so you may be able to reduce the tax liability of the higher earner within your partnership by making use of the Marriage Allowance. It is still a little-known way for couples to transfer a proportion of their Personal Allowance (the amount that an individual can earn in a year before paying income tax) between them to maximise their income and millions of eligible couples are missing out.
What is Marriage Allowance?
Marriage Allowance allows you to transfer £1,100 of your Personal Allowance to your husband, wife or civil partner if they earn more than you. This will take effect by reducing the income tax that they are required to pay by up to £220 in the tax year (6th April to 5th April the following year). If you apply for Marriage Allowance and your application is successful, changes to your personal allowance will be backdated to the beginning of the tax year (6th April).
Who is eligible?
In order to be eligible to pass £1100 of your Personal Allowance to your higher earning husband, wife or civil partner, you must fulfil each of the following criteria
- You must either be married or in a civil partnership
- You must either not be earning or earn less than £11000 per annum
- Your partner’s income must be between £11001 and £43000 ie. A basic 20% rate tax payer, couples where one partner is a higher or additional rate tax payer are not eligible for this allowance
- Both of you must be born on or after 6th April 1935, if not there is another allowance called the Married Couples Allowance that would work better for you.
Marriage Allowance can still be applied for if either you or your partner are currently receiving a pension or living abroad. As long as you get a Personal Allowance from the UK tax administration (HMRC) you are eligible to apply.
How will our Personal Allowances change?
If your application is successful, HMRC will give your partner the additional allowance either by changing their tax code (usually to 1166M) which can take up to 2 months to happen in practice or if they are self-employed, the extra allowance will be applied when HMRC receive their Self-Assessment tax return.
If you are either employed or receiving a pension, then your tax code will also change to reflect the reduction in your Personal Allowance and will end with ‘N’.
A proportion of your Personal Allowance will then automatically transfer to your partner every year until you either cancel Marriage Allowance because your own income increases sufficiently that Marriage Allowance is no-longer viable, or your partnership circumstances change due to death or divorce.
How do we apply?
It is very simple to apply and only takes a few minutes. You can apply for Marriage Allowance online. In order to complete the application, you will both need your National Insurance numbers, and an acceptable form of ID if the partner passing their Personal Allowance is a non-taxpayer.
Should you encounter any problems applying online, just call 0300 200 3300 and do it by telephone instead.
Remember, it is the non-taxpayer that must apply to transfer their allowance. If the taxpayer tries to apply, then the application won’t work. If you were also eligible for the allowance in the previous tax year, you’ll have to select this option as part of the application process.
You’ll be informed immediately that your application has been received via email if you’ve applied online. If you were also eligible for the allowance in the previous tax year, you’ll have to select this option as part of the application process.
We hope you have found this article interesting and informative. If you have any questions or would like to discuss Marriage Allowance further, please call Trinity on 0800 954 2099 for a Free Consultation or complete our online form.