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11 October 2017

Marriage Tax Allowance – Get a tax break worth up to £662

Frequently Asked Business Question:

I have read recently about a tax relief known as marriage allowance and I was wondering if it applied to my circumstances. I work full time and earn £40,000 a year and my wife works part-time earning £8,000 per year. Can I save tax by claiming this marriage allowance?

Top Tip:

If you’re married or in a civil partnership, you can register for the Marriage Allowance, a tax break which could save you up to £230 a year. The Marriage Allowance was introduced in 2015 and it essentially allows you to transfer some of your tax-free personal allowance across to your partner, or for your partner to transfer some of theirs to you, so that you as a couple can reduce the amount of tax you pay.

Say, in your situation above, where your spouse earns £8,000 a year doing part-time work in the current 2017/18 tax year, then they’ll still have £3,500 of their personal allowance left over.

This means they can then transfer £1,150 of this to you, bumping up your total tax-free allowance to £12,650. And that means you won’t be charged basic rate tax at 20% on the bit extra, which is equivalent to a saving of £230 a year (20% of £1,150).

Not every married couple can claim the Marriage Allowance. It is only possible to transfer some of your wife’s personal allowance across to you where you don’t pay more than the basic rate of income tax.

In order to qualify for the tax break, the following circumstances must apply:

  • You’re married or in a civil partnership (just living together doesn’t count)
  • Both parties need to be born on or after 6 April 1935
  • One of you needs to be a non-taxpayer, which usually means earning less than the £11,500 personal allowance
  • The other one of you needs to be a basic 20% rate taxpayer (couples with a higher- or additional-rate taxpayer aren’t eligible for this allowance). This means you’d normally need to earn less than £45,000

The government estimate that more than 4 million married couples and 15,000 civil partnerships are eligible for this tax break. The marriage tax allowance started on 6 April 2015, and in year one was worth £212. For the following tax year, starting in April 2016, it was worth £220. For this tax year – beginning April 2017 – it’s worth £230. Plus claim it now and it’s backdated so many get previous years’ AND this year’s allowance – £662.

Whoever receives the allowance, whether it’s you or your partner, will get the money in their pay packet each month. Your or their tax code will be altered to take account of the bigger personal allowance.

The advice in this column is specific to the facts surrounding the questions posed.  Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
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