The Marriage Allowance, a scheme introduced by David Cameron in 2015, serves as a pivotal yet often overlooked tool for married couples and civil partners aiming to alleviate their tax obligations.
Despite its inception over seven years ago, a considerable proportion of qualifying couples have not yet harnessed this facility to reduce their annual tax liabilities.
At the heart of the Marriage Allowance is its capacity to significantly reduce the annual tax burden for spouses or civil partners.
It offers a potential saving of up to £252 each year.
The essence of the Marriage Allowance lies in permitting the partner with lower earnings (under the £12,570 threshold) to transfer a slice of their personal tax allowance to their higher-earning spouse, assuming the latter pays tax at the basic rate.
Imagine a scenario involving a couple where one partner’s income is £8,500 (below the tax-free threshold) while the other’s is £20,000.
Each partner is initially entitled to the standard personal tax allowance of £12,570.
Consequently, the higher-earning partner would be taxed on £7,430 of their income.
Through the Marriage Allowance, the partner with lower earnings has the option to transfer £1,260 of their tax-free allowance to their spouse.
This adjustment increases the personal allowance of the higher earner to £13,830, thereby reducing their taxable income to £6,170, which translates into a saving of £252.
Eligibility criteria
It’s important to note that individuals with earnings between £11,310 (the personal allowance minus £1,260) and £12,570 might incur some tax liability upon transferring their allowance.
Nonetheless, the cumulative financial benefit for the couple often justifies this move.
Remarkably, for couples who have recently discovered their eligibility for the Marriage Allowance, the Government allows for claims to be backdated to any tax year from 5 April 2019 onwards.
This provision also extends to situations involving the death of a partner, enabling the survivor to claim retrospectively.
How to apply
Engaging with the application process for the Marriage Allowance is a straightforward yet essential step towards optimising your tax savings.
This is primarily done online.
Here’s a detailed walkthrough to guide you through each step:
Alternatively, your accountant could do this for you.
If you’d like help applying for the marriage allowance, it’s always best to speak to a qualified and experienced accountant who can guide you through every step in the process.
We are experts in this regard and have given several of our clients’ access to this valuable form of tax relief.
For more information or for expert advice, please get in touch.
