Recently, awareness around marriage or civil partnership, and the benefit it brings to optimised inheritance tax planning, has increased. However, one new allowance offered by the government is being ignored by up to two million married couples – the Marriage Allowance.
This is not to be confused with the generous Married Couple’s Allowance which, while also important, only applies to couples where one of them was born before 6 April 1935.
The pre-tax income from the lower earning partner must be below the personal allowance – which is £11,850 for 2018/19.
The threshold for basic rate taxpayers in 2018-19 for most of the UK is £11,850-£46,350 and the higher earning partner’s salary must fall between these boundaries.
If you are eligible, the lower earner can transfer any unused tax-free allowance up to 10% of the value of the full personal allowance to their higher-earning partner.
As an example, if eligible in 2017/18, you would have been able to transfer up to £1,150 because the personal allowance was £11,500.
For the 2017/18 tax year, this would have reduced their tax bill by up to £230. HMRC also have a calculator on their website to check your entitlement to the allowance.
You can backdate your claim for up to four years, meaning there are significant savings to be made if the criteria are met. In 2015/16, the full benefit was worth £212 and in 2016/17 it was worth £230.
When launched by the Government, HMRC estimated that over 4 million couples stood to gain from the allowance. However, a recent freedom-of-information request from Royal London’s Steve Webb (a former pensions minister) revealed only 2.2 million couples had claimed so far, leaving a potentially unclaimed pot of £1.3 billion.
Now is the time to check your records and process a claim. You are also able to claim for periods away from the workplace such as maternity leave or unpaid sabbaticals. Whilst it is understandable that such a detail would be missed during the arrangements following the loss of a loved one, it is possible to backdate your marriage allowance claim even after your partner has passed away. To do so, you just need to contact HMRC’s helpline to start the process.
You have to claim the Marriage Allowance – it doesn’t just happen. The transfer of the allowance happens every year thereafter until you cancel it, so it’s your responsibility to keep HMRC informed of any changes in circumstances.
The non-tax payer has to apply, and can start the process on the government website. Usually the HMRC will give the recipient partner their increased allowance by updating their tax code although self-employed recipients can make the adjustment via their self-assessment return.
As with the importance of making a will, there is no provision made for common-law partnerships under this legislation. However, for married couples this is a worthwhile thing to investigate. As with shopping around for better deals from banks and utilities, a twenty-minute check can potentially save you hundreds of pounds