HMRC is increasing the personal tax-free allowance for some UK households to £13,830 through the Marriage Allowance scheme. This initiative allows one spouse or civil partner to transfer a portion of their unused personal allowance to their partner, reducing their overall tax bill.
How Marriage Allowance Works
The Marriage Allowance enables a donor spouse or civil partner, who earns less than the personal allowance threshold, to transfer £1,260 of their allowance to their higher-earning partner. The recipient then receives a tax reducer, effectively lowering their taxable income. The donor must make the claim for the allowance to take effect.
UK Property Accounts explains: "Let us break it down with an example. Imagine Sarah is a stay-at-home parent, earning nothing, whereas her partner James brings home £40,000 a year. Because Sarah isn’t using her full Personal Allowance, she can transfer £1,260 of it to James. This means James’s taxable income falls by £1,260, saving the couple £252 in tax for the year."
Backdating Claims for Maximum Benefit
If couples have not previously claimed the Marriage Allowance, they can backdate their claim for up to four tax years. This could result in a lump sum payment of £1,008 (£252 x 4) from HMRC, in addition to the £252 saved in the current tax year, totalling £1,260.
Once a claim is made, HMRC adjusts the tax code to reflect the change, boosting the recipient's tax-free Personal Allowance from £12,570 to £13,830 for the year.
Why Many Miss Out
The allowance is not widely known. UK Property Accounts notes: "You might be wondering why this is not common knowledge. After all, who would not want an extra £252 a year? The truth is, many people do not know the Marriage Allowance exists. HMRC does not exactly shout about it, and unless you are a tax nerd or have a particularly clever accountant, it is easy to miss."
Eligibility is restricted: higher-rate taxpayers earning above £50,270 are not eligible, nor are couples where both partners earn more than £12,570. However, for those who qualify, applying is straightforward and can lead to significant savings.
