
Maximizing Tax Savings with Marriage Allowance: A Guide for Married Couples and Civil Partners
14 Oct 2024
Published in: Member News
Marriage Allowance allows married couples and civil partners to transfer a portion of their unused personal allowance to their spouse or partner, offering potential tax savings of up to £252 annually
I often find that many couples are unaware of the tax savings available through the Marriage Allowance. This valuable tax break allows eligible couples to reduce their overall tax burden, making it an essential consideration in effective tax planning.
What is Marriage Allowance? Marriage Allowance permits one spouse or civil partner to transfer up to 10% of their unused personal allowance to the other. In the 2023/24 tax year, the personal allowance is £12,570, meaning that up to £1,260 can be transferred. This transfer reduces the higher earner’s taxable income, resulting in a potential tax saving of up to £252.
Eligibility Criteria To benefit from Marriage Allowance, the following conditions must be met:
You must be married or in a civil partnership – Unmarried couples, even if cohabiting, are not eligible.
One partner must earn below the personal allowance threshold – This means one partner’s income must be less than £12,570 for the tax year.
The other partner must be a basic rate taxpayer – The higher earner’s income must be within the basic rate tax band, which is £12,571 to £50,270. Higher rate and additional rate taxpayers are ineligible.
How It Works Consider the following example to understand the financial impact:
Partner 1 earns £10,000, leaving £2,570 of their personal allowance unused.
Partner 2 earns £30,000, making them a basic rate taxpayer.
Partner 1 can transfer £1,260 of their unused allowance to Partner 2, increasing Partner 2’s personal allowance to £13,830. This reduces Partner 2’s taxable income by £1,260, resulting in a tax saving of up to £252.
Tax Implications and Key Considerations Backdating Claims: If you were eligible for Marriage Allowance in previous tax years but didn’t claim it, you can backdate your claim for up to four years, potentially resulting in a tax refund.
For example, backdating to 2019/20 could lead to a refund of around £250 per year.
Ineligibility for Higher Earners: The Marriage Allowance is only available if the higher-earning partner is within the basic rate tax band. If their income exceeds £50,270, the allowance cannot be applied.
Impact on Other Benefits: Be aware that transferring part of your personal allowance may affect other allowances or benefits, particularly those that are means-tested. It’s important to assess the overall impact on your financial position.
Changes in Circumstances: Marriage Allowance claims should be reassessed if there are changes in marital status, income, or tax bands. For example, if one partner’s income exceeds the basic rate tax threshold, you must notify HMRC.
Conclusion: Marriage Allowance offers a simple and effective way for eligible couples to reduce their tax liabilities. As part of a comprehensive tax strategy, it ensures that couples are maximizing their allowances and keeping more of their income. If you would like professional advice on how to take advantage of Marriage Allowance or any other tax-saving opportunities,
I am available to assist. Contact me at: shahzad.younas@aims.co.uk
07578 347264
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