Marriage Allowance: Everything you need to know

Marriage Allowance (MA) is a valuable tax benefit for couples in the UK. MA can reduce your overall tax liability and increase your net income. If you and your spouse or civil partner meet specific eligibility criteria, you can transfer a portion of your Personal Allowance to your partner. MA can save you up to £252 in tax each year.

What is a Marriage Allowance?

Marriage Allowance enables one partner in a marriage or civil partnership to transfer a portion of their unused Personal Allowance to the other partner. The Personal Allowance refers to the income an individual can earn before paying income tax. For the 2024/25 tax year, the Personal Allowance stands at £12,570. The amount that can be transferred under the Marriage Allowance is £1,260, potentially leading to a tax saving of up to £252.

MA benefits couples where one partner has a lower income, potentially earning less than the Personal Allowance threshold, while the other partner has an income within the basic rate tax band.

Who Qualifies for the Marriage Allowance?

To qualify for the Marriage Allowance, both partners must meet specific conditions:

1. Marital or Civil Partnership Status: You must be married or in a civil partnership. Co-habiting couples not formally married or in a civil partnership do not qualify.
2. Income Requirements:

1. • Lower Income Partner: One partner must have an income below the Personal Allowance threshold (£12,570 for the 2024/25 tax year).

1. • Higher Income Partner: The other partner must be a basic rate taxpayer, i.e., earn up to £50,270 for the same tax year.

How Does the Marriage Allowance Work?

The process of transferring a portion of the Personal Allowance is straightforward but involves a few critical steps:

1. Application: The partner with the lower income must apply to transfer their unused allowance. You can do this online, by phone (0300 200 3300), or through a self-assessment tax return if applicable.
2. Calculation: HMRC will adjust the tax codes for both partners once the application is approved. The partner transferring the allowance will receive a lower Personal Allowance, while the recipient’s will increase by the same amount.
3. Tax Savings: The recipient partner’s tax liability is reduced by 20% of the transferred allowance amount. For the 2024/25 tax year, this equates to a potential tax saving of £252.
4. Impact on Tax Codes: The lower-earning partner’s tax code will decrease (usually ending in “N” for “No Allowance”), while the higher-earning partner’s tax code will increase (typically ending in “M” for “More Allowance”).

Claiming Marriage Allowance for Previous Years

One of the advantages of the Marriage Allowance is the ability to backdate claims for up to four years. This feature is particularly beneficial if you were eligible in previous years but still need to claim the allowance. The total tax benefit can add up significantly, providing a lump sum refund for the earlier years.

For example, if you were eligible for the Marriage Allowance in the tax years 2020/21, 2021/22, 2022/23, and 2023/24 but did not claim it, you could receive a refund in addition to the current year’s allowance.

What Happens if Your Situation Changes?

It’s essential to notify HMRC immediately if your circumstances change, which can affect your eligibility for the Marriage Allowance. Changes that might impact your eligibility include:

1. Income Changes: If either partner’s income increases or decreases significantly, it could affect the amount of Personal Allowance available for transfer.
2. Marital Status: If your marital status changes, such as through separation or divorce, you may no longer be eligible for the allowance.
3. Employment Status: Changes in employment status, such as retirement or starting a new job, can also impact your eligibility.

Please notify HMRC of these changes to avoid overpayment or underpayment of taxes, which could result in possible penalties or interest charges.

Common Misconceptions About the Marriage Allowance

There are a few common misconceptions about the Marriage Allowance that are important to clarify:

1. Co-habiting Couples: Only legally married couples and civil partners are eligible for the allowance. Simply living together does not qualify you for this tax benefit.
2. Income Thresholds: Both partners’ incomes are critical in determining eligibility. One must earn below the Personal Allowance, and the other must fall within the basic rate tax band.
3. Automatic Adjustments: HMRC does not automatically adjust your tax code based on potential eligibility. You must apply to receive the allowance.

MA is a tax benefit in the UK that many couples need to take full advantage of. Understanding who qualifies, how to apply, and how much you could save can help you lower your taxes and increase your income. If you qualify, it’s worth learning more and applying for the Marriage Allowance. For help with taxes or more information, please get in touch with Peer Accountants at 0121 369 0695 or info@peeraccountants.co.uk.