The Marriage Allowance: Unlocking Hidden Tax Benefits

Marriage Allowance

Tax season often causes a lot of stress and uncertainty. However, there is a little-known gem called the marriage allowance buried deep within the complex UK tax system. This is often ignored by most of married couples and civil partners in the United Kingdom. However, this allowance is quite remarkable to lessen their tax burden to some extent. In this blog, we are going to explore how it works, the eligibility criteria, and so on. So, whether you’re a newlywed or are living together for years, it makes a lot of sense to explore know how this could help you. After all, having a little extra cash never hurts!

What is Marriage Allowance?

This allowance enables couples to transfer a part of their personal tax allowance between them. This means that if one partner earns less than the personal allowance, there can be a transfer of a part of the unused personal allowance to the other partner who is a basic rate taxpayer (£12,571 to £50,270) leading to a reduction of their overall tax bill.

How does it work?

To understand this let as assume that your annual income is £11,000. This is well below the personal allowance threshold which is up to £12,570. So, you are not required to pay any tax. Now your partner earns £22,000 which is typically above the personal allowance threshold. This means your partner is paying tax on £9430. So, as a couple, you are paying taxes on £9,430, but you can transfer £1,260 of your unused personal allowance to your partner. This will increase his or her personal allowance and will decrease the taxable income leading to an overall reduction in the taxes in a tax year.

Know who is eligible

There are some criteria that you must meet to get marriage allowance. These are as follows:

  • You must be married or in a civil partnership
  • Either you or your partner must be earning below the personal allowance or is exempted from paying any income tax
  • Either you or your partner must be a basic rate taxpayer
  • It’s important to remember that you can still claim the marriage allowance if one of you is receiving a pension or is living abroad. This is applicable as long as you’re fulfilling the other eligibility criteria of receiving the personal allowance which is £12,570.

Know the application process

You can apply for the marriage allowance online by visiting the HMRC website. However, you both must provide your national insurance numbers. Also, there must be some form of identification for the person making the transfer. Once you applied, HMRC will make adequate adjustments. If they found that you are eligible, the tax relief will get applied automatically.

How to maximize the benefit

While the marriage allowance might seem like a small saving, you should not ignore it. As the tax rules and your income can change, it makes a sense to check your eligibility each year. Also, do not forget to backdate, especially if you’re eligible to claim this benefit, but haven’t yet claimed for the previous tax years.

In a nut shell, marriage allowance is an invaluable tax benefit that you must avail. Take advantage of this allowance and decrease your tax bill. If still, you are not sure, you can always consult a tax professional to get adequate advice and do accordingly.