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The marriage tax allowance is a tax benefit that’s available to married couples and civil partners in the UK. It helps people who are eligible for the allowance to reduce the amount of tax that they pay as a couple.
It allows one person in a married couple or civil partnership to transfer £1,260 of their personal allowance to their spouse or partner. This increases the receiving partner’s personal allowance, which is usually £12,570 per year.
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To be eligible, you must be married or in a civil partnership. One partner should not be paying income tax or have an income below £12,570, while the other partner should be a basic rate taxpayer with an income between £12,570 and £50,270.
There are three strict sets of eligibility criteria – you have to meet all three to be able to claim.
If you’re eligible, in that you meet those three criteria, you can go online through the Gov.uk website or via your own self-assessment if you’re registered to do tax returns. If you can’t go online, then there is a form called the MATCF which you can complete and return it to the mailing address on the form.
I always like to use examples to explain how it works. So let’s imagine we are married and I’m working part-time. I earn £9,000 a year which is below the personal allowance of £12,570, so I’m not paying any tax. I’ve got no other income either.
Essentially, £3,570 of my personal allowance is being wasted. But you, my spouse, are employed full time and you’re earning £40,000 per year. Your income is exceeding the personal allowance of £12,570, but it’s still below the £50,270 threshold for higher rate tax.
You’re paying basic rate tax of 20% 0n £27,430 of your income. And we’re meeting all the eligibility criteria – we’re married, I’m a non-taxpayer, you’re a basic rate taxpayer.
What I can do is go online and apply for the marriage allowance. My personal allowance will then be reduced to £11,310 per year. My income is still lower than that so I’m still not paying any tax. But you’ll get a tax credit of £1,260 on your taxable income. Now, you’re only paying the base rate tax of 20% on £26,170 of your income. That’s going to save you about £252 a year.
You have to meet all of the eligibility requirements. If you aren’t married or in a civil partnership, you can’t claim – even if you’ve been living together for years. You also can’t claim if one of you is a higher rate taxpayer or an additional rate taxpayer.
How much can couples save through the marriage tax allowance scheme?
It should be up to £252 in a tax year – that’s the maximum.
Yes, absolutely, but again only if the relationship has been formalised either through marriage or civil partnership.
What happens to the marriage tax allowance if the couple divorces or separates?
So you absolutely must cancel the marriage allowance if you divorce, dissolve your civil partnership or you legally separate. You have to actively go online and do that.
You cannot be a higher rate taxpayer. If one of you is a non-taxpayer and the other is a higher rate taxpayer, even if it’s only just over the threshold, you don’t qualify. Your income must be below £50,270 per year.
There are two allowances available to married couples. First is the marriage tax allowance that we’ve been talking about which is there if you’re eligible.
But there’s another allowance called the married couples allowance which is only available if you or your partner were born before 6 April 1935. That is more generous – so you’re probably going to benefit more from the married couples allowance if you’re eligible than from the marriage tax allowance.
If you were married before 5 December 2005, married couple’s allowance is based on the husband’s income. For any marriages or civil partnerships after that date, your allowance is based on the highest earner. This allowance is incredibly complicated, as you can probably tell. There are upper and lower limits both on how much you can earn and how much tax you can claim back. It very often varies throughout the tax years as well.
As an overview, this married couple’s allowance works by reducing the tax bill. You get 10% of your eligible allowance as a reduction on the tax you have to pay. Whereas the marriage tax allowance works by transferring personal allowance over to the other – so you’re allowed to earn more money without paying tax.
So while there’s very little difference in what we call them, there’s a big difference around who’s eligible and how it works.
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There are a few. For Capital Gains Tax purposes, transfers between married couples and civil partners can be made on a no gain, no loss basis. That means that there’s no capital gains tax liability if one spouse were to give the other all their portfolio shares, for example.
There’s also inheritance tax benefit. You can leave all your assets to your spouse free of inheritance tax if you’re still married. Again, that goes for civil partners and spouses.
Your spouse or civil partner can also inherit your nil rate band and residential rate band too. These are some of the benefits of being married for tax purposes.
The value of pensions & investments and any income from them can fall as well as rise. You may not get back the amount originally invested.
Tax treatment varies according to individual circumstances and is subject to change.
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