As a married couple or civil partnership in the UK, you may be eligible for a valuable tax break known as the Marriage Allowance (MA). Despite the potential savings of £252 per year, many eligible couples are missing out on this benefit.

In fact, out of the 4.2 million couples who qualify, only 1.8 million are currently claiming the allowance. This blog post aims to shed light on the Marriage Allowance, its eligibility criteria, and how to take advantage of this tax-saving opportunity.

Understanding the marriage allowance

The Marriage Allowance is not an allowance in the traditional sense but rather a tax reducer that allows the reallocation of £1,260 of the annual personal allowance from one person in the marriage or civil partnership to the other. By making this transfer, the couple can save up to £252 in taxes yearly (£1,260 x 20%).

Eligibility criteria

To claim the Marriage Allowance, you must meet the following criteria:

1. Marital Status: You must be married or in a civil partnership when the transferor applies to transfer the allowance. Interestingly, the couple is not required to live together, meaning the allowance can still be transferred even after separation or in cases where one spouse has passed away.

2. Tax Rates: During the relevant tax year, the transferee (the person receiving the allowance) must not be liable to tax at a rate other than the basic rate, the ordinary dividend rate, or the starting rate for savings.

3. Married Couple's Allowance: Neither person in the couple should receive the Married Couple's Allowance, a separate allowance claimable where one person in the marriage was born before 6 April 1935.

It's important to note that the eligibility criteria often must be understood. Many sources, including HMRC's website, state that one partner must have income less than the personal allowance of £12,570 to claim the Marriage Allowance. However, this is not what the legislation says. The qualification in the legislation is that neither person is a higher or additional rate taxpayer, not that one of them receives income below the personal allowance.

This means that the transferor (the person giving up a portion of their allowance) can have, for example, £18,310 of income (comprising a salary of £11,310, interest of £6,000, and £1,000 in dividends), make the transfer, and still have no tax to pay. Furthermore, if a taxpayer has an extended basic rate band (e.g., as a result of gift aid payments or pension contributions), that extended basic rate band is used to determine whether the taxpayer is a basic rate taxpayer and, therefore, whether the Marriage Allowance may be claimed.

Claiming the marriage allowance

The process of claiming the Marriage Allowance can be complicated. The claim is made by the person surrendering the allowance by ticking a box on their self-assessment tax return (if they are registered for self-assessment) or by completing the Marriage Allowance form (MATCF) and posting it to the address provided on the form. It's important to note that the recipient cannot claim the allowance, as there is nowhere on their tax return to indicate the transfer.

Enduring elections

The election must be made each subsequent year when claiming the Marriage Allowance through the self-assessment tax return, as it cannot become enduring. On the other hand, elections made via the completion of form MATCF will become enduring and will be carried forward each year until cancelled.

If an enduring election is in place and the transferor has income taxed under PAYE, the existence of an enduring Marriage Allowance claim can be determined by their tax code. A suffix 'N' indicates a transfer to their spouse, while a suffix 'M' indicates receipt from their spouse.

Time limit and refunds

As with any claim for repayment of overpaid tax, the general time limit for claiming the Marriage Allowance is four years. If both partners have PAYE-taxed income, their tax codes will be amended accordingly. Self-employed individuals will see their final tax bill reduced. In other cases, the refund will be issued by cheque. Starting from February 2024, the refund can also be made to a third party, such as an agent, if required.

Conclusion: The Marriage Allowance is a valuable tax break that can help married couples and civil partnerships in the UK save up to £252 per year. Despite the significant number of eligible couples, many are still not taking advantage of this benefit, often due to a lack of awareness or misunderstanding of the eligibility criteria.

By understanding the true eligibility requirements and the process of claiming the Marriage Allowance, you can ensure that you and your partner take advantage of this tax-saving opportunity. Whether you claim through your self-assessment tax return or by completing the designated form, exploring your eligibility and submitting a claim can lead to meaningful savings over the years.

As with any tax-related matter, it's always advisable to consult with a qualified tax consultant nearby or refer to official HMRC guidance to make informed decisions based on your circumstances. By staying informed and proactive, you can make the most of the tax breaks available to you and your partner, ultimately helping to ease your financial burden and secure a brighter financial future together.