Moolr.co.uk | Short term loans

How Marriage Allowance Works

Many of us will have little idea about marriage allowance, or that it even exists. For many of us, it does not matter! But for those that are married, this allowance can be very useful indeed. We take a look at how marriage allowance works.

How Marriage Allowance Works

Marriage Allowance permits you to transfer £1,250 of your Personal Allowance to your husband, wife or civil partner. As a result, this can reduce tax liabilities by up to £250 in a tax year. For a couple to benefit however, the lower earner of the two should normally require to earn less than the personal allowance. This currently stands at £12,500 per annum.

Those who think they may qualify for such an allowance can check online how much tax they could save as a couple.  Other income such as dividends may hamper your eligibility for such a benefit.

Should you transfer some of your Personal Allowance to your partner or civil partner,  you may actually end up paying more tax yourself. Despite this, you could still pay less as a couple. This makes it worthwhile.

An Example

A person pays £11,500 and your Personal Allowance is £12,500, so they are exempt from income tax.

Their partner earns £20,000 . Taking the personal allowance into consideration, they thus pay tax on £7500 of earnings. And the couple pay that combined as the partner earns under the tax band. 

Thus earner one transfers £1,250 of their Personal Allowance to the higher-earning partner. Their Personal Allowance becomes £11,250 and your partner gets a ‘tax credit’ on £1,250 of  taxable income.

The first partner now pays tax on £250 of earnings. The partner will only pay tax on £6,250. The couple benefit on the whole. They now only pay tax on £6,500 rather than £7,500. This saves them £200 in tax.

Who can apply

The following people can apply:

  • those married or in a civil partnership
  • anyone that does not pay Income Tax or whose income falls below the Personal Allowance figure (usually £12,500)
  • if your partner pays Income Tax at the basic rate, which usually means their income is between £12,501 and £50,000, prior to them applying for Marriage Allowance

How Marriage Allowance Works – Exemptions?

You cannot claim Marriage Allowance if you live together but are not married nor in a civil partnership. In Scotland, the rules differ somewhat. A partner must pay the starter, basic or intermediate rate. This usually means their income is between £12,501 and £43,430.

An application for Marriage Allowance will not be affected if you or your partner:

Those born before 6 April 1935 may well see a greater benefit as a couple by applying for Married Couple’s Allowance. You may not receive Marriage Allowance and Married Couple’s Allowance simultaneously.

Backdating

You can backdate your claim to include any tax year since 5 April 2016 in which you feel you were eligible for Marriage Allowance. The tax bill of your partner or you will be reduced accordingly.  Claims are even allowed if a spouse has since died. 

Ending Marriage Allowance

Your Personal Allowance will transfer automatically to your partner every year until you cancel Marriage Allowance.   So if you wish to end the allowance, you must be proactive and contact HMRC.

  No Obligation Application