Marriage Allowance and How it Works

Did you know that, according to data provided by HMRC, almost 70,000 couples applied for Marriage Allowance in March 2023? 

A press release published by HMRC on Monday 26^th February confirmed the month of March as the top month of the year for marriage allowance claims. As we touched on marriage allowance in last week’s post on unclaimed tax benefits – and with tomorrow being 1^st March 2024 – we thought this would be the perfect opportunity to dive into the topic further. 

We’re going to run you through everything you need to know about the Marriage Allowance, from what it is to how you can take full advantage of it.   

What Is the Marriage Allowance?

In simple terms, the Marriage Allowance is a way for couples who are married or in civil partnerships to save money. It’s a tax perk where a lower-earning partner can reduce the tax paid by a higher-paying partner by transferring up to £1,260 of their Personal Allowance to them.  

How Does It Work?

The lower income partner needs to be earning less than the current Personal Allowance of £12,570 (Personal Allowance is the amount you can earn before you start to pay tax on your income). If the higher-earning partner in the relationship has a total income within the basic tax rate (from £12,571 to £50,270) the lower income partner can transfer £1,260 of their Personal Allowance to the higher-earning partner, thereby bringing their own Personal Allowance down to £11,310 and their partner’s up to £13,850. While this might mean that the lower income partner will now have to pay some tax, it does result in less taxable income when the two salaries are combined. 

Need An Example?

Let’s say your total income in the 2023-2024 tax year is £11,500. This is below the Personal Allowance of £12,570, so you do not pay income tax. Your partner’s income is £25,000, which means they pay tax on £12,430 of their income. As a couple, this makes your taxable income £12,430 in total.  

When you claim Marriage Allowance, you transfer £1,260 of your Personal Allowance to your partner, making your new Personal Allowance £11,310 and your partner’s £13,850. This means you will now pay tax on £190 of your income, but your partner will only pay tax on £11,170 of theirs. As a couple, this makes your taxable income £11,360 in total, or £1,070 less than if the Marriage Allowance were not utilised. 

How Much Could Be Claimed?

If the lower income partner is still below the Personal Allowance after transferring £1,260 of their Personal Allowance to the higher income partner (i.e. earning less than £11,310 per year), the couple will reduce their tax bill for the 2023-2024 tax year by £252. Couples can also backdate their claim for the previous four tax years, meaning they could receive a lump sum payment of over £1,000, provided all the correct criteria are met. 

How To Take Advantage?

Step one? We recommend finding out if you and your partner are eligible to make a Marriage Allowance claim. You can do this in just a few easy steps using HMRC’s Marriage Allowance Calculator. If you are eligible but unsure how to take advantage, get in contact with Caroola and set up a meeting with one of our dedicated accountants, who will be able to advise you over potential next steps.