Friday, 20 March 2015


UPDATED 14 January 2017

There are three distinct and separate income tax breaks for those who are married. One is new. Another is being phased out. And the third is not well known at all.

Married couples and civil partners are treated equally by these laws. So throughout this piece I use the word 'marriage' to include 'civil partnership' and 'spouse to include 'civil partner'. The rules do not apply to couples who are not married or civil partners.

This new tax break began in April 2015. It is called Marriage Allowance and applies to a married couple where (a) one partner has an income at or below below the personal tax allowance, currently£11,000 a year, and (b) the other partner does not pay higher rate tax, which means they have an income no more than £43,000 this tax year, and (c) neither was born before 6 April 1935. 

If a couple qualifies then the non-taxpayer can effectively transfer £1100 of their unused personal allowance to their spouse. That will save the taxpaying spouse basic rate tax on that amount which is £220 this tax year (£18.33 a month or £4.23 a week) in income tax.

Savings: If the person transferring the allowance has savings income then that is tax free certainly up to £1000 and in some cases up to £5000 on top of their personal allowance. If that takes their income above £11,000 they can still transfer the allowance. Similarly income from an ISA does not affect it. It is more accurate to say taxable income must be no more than £11,000. These non-taxable amounts do not count towards that limit.

Dividends: There are complexities for people who have dividend income. Some accountants believe that HMRC is not operating the rules correctly. 

Future value: In future years the Marriage Allowance will rise. It is fixed at 10% of the personal tax allowance. So on present plans it will be £1150 in 2017/18, and £1250 by 2020/21.

Claiming: To get the allowance you can claim online or on the phone through the income tax helpline 0300 200 3300. You will need National Insurance numbers and dates of birth for you and your spouse. You will also need some ID. Just a bank account will do. Lines are open 0800-2000 Mon-Fri or 0800-1600 Saturday. Feedback from readers is that the process is now very straightforward. 

The Revenue wants to encourage online or telephone claims. It will not be producing a paper form to fill in. However, it has confirmed to me that it can be claimed by simply writing a letter. It is not clear how quickly such a claim will be dealt with. If you can claim online that is the best way to do it.

Tax code: Once the transfer has happened the one receiving the extra allowance will have a suffix M added to their tax code and the code itself will be 110 higher representing the full £1100 transferred. The one making the transfer will have a suffix N and their tax code will be 110 lower. These suffix letters are a handy way to check if the transfer has been done.

Once the tax code has been changed the benefit of the transfer will be felt in the next salary or pension payment. It will be backdated to the start of the tax year and then be reflected in in a reduced amount of tax for the rest of the tax year.

Once you have got the allowance it should carry on in future. If your circumstances change so you no longer qualify you must tell HMRC.

If you successfully claim for this tax year you may also be entitled for 2015/16 as well. You will have to claim that as part of your claim. It will not be done automatically. If your claim is successful the cash amount of £212 will be paid to the taxpaying spouse by check or bank transfer. The allowance for 2015/16 can be claimed up to 5 April 2020.

Fiddly bits:
Full amount: One rule puzzles people. The transfer can only be for the full amount of £1100. That can be done even if the person transferring the amount has an income at or close to their personal tax allowance. So someone with an income of £10,500 who is a non-taxpayer can transfer the full £1100 leaving themselves with a personal allowance of £11,000-£1,100=£9,900. So they will start being a taxpayer and pay basic rate tax on £10,500-£9,900=£600. So their tax bill will be £120. But their spouse will save £220 leaving the couple £100 better off.

Both taxpayers: The law does allow the allowance to be transferred if both partners pay basic rate tax and neither pays higher rates of tax. However, if it is transferred that will not leave them better off as a couple. One will pay less tax, the other the same amount more. That is why the guide does not mention it. The online claim form allows the claim to be made. The helpline should point out that you will be no better off.

Transfer of the allowance: Some accountants will tell you that the allowance is not transferred. Rather the £220 is just a deduction off the tax bill of the other partner. This is a technical matter which does not affect most people.

Abroad: Normally the person receiving the allowance must have an income below £43,000. But if both spouses live abroad and have some income arising in the UK it is possible that someone with a high overseas income will still be able to receive the transferred tax allowance.

Take-up: When the policy was announced in December 2013 the Government estimated that 4.2 million couples would be eligible for the new allowance. HMRC says it hopes all of them will get it. But the latest figures show less than a third of them, around 1.3 million, have in fact claimed.

More information on Marriage Allowance.

The Marriage Allowance cannot be claimed if either spouse was born before 6 April 1935 because they can already get a bigger tax break called Married Couple’s Allowance. That is a hangover from a concession that all married couples used to get until it was scrapped from 6 April 2000. But an exemption said that anyone aged 65 then (ie born before 6 April 1935) could still have the allowance.

Married Couples Allowance is worth up to £835.50 off one partner’s tax bill. If income exceeds £27,700 the allowance can be reduced but it can never be less than £322. It can be claimed by a member of a couple now if one of them meets the age criteria. So an 83 year old marrying a 55 year old can claim it. It is normally given to the spouse with the higher income and part of it is transferable to the other spouse. If you can claim it then get it backdated for up to four tax years if you were eligible then. More information on Married Couple's Allowance

There is a third allowance that a married couple can transfer between them. The Blind Person’s Allowance is £2290 in 2016/17 so is worth £458 to a basic rate taxpayer. However, if the blind person cannot make use of it all – has an income below £13,290 in 2016/17 – the unused portion of it can be transferred to their spouse.

To qualify for Blind Person's Allowance in England, Wales, and Northern Ireland you have to be registered with your local councils as blind or severely sight impaired. In Scotland you qualify if you cannot do work that requires sight. If both partners qualify they each get one allowance. More information on Blind Person's Allowance.

30 January 2017
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