April 21st 2015

On 6 April 2015 a new Marriage Allowance came into effect, offering tax benefits for eligible couples.  The allowance applies to married couples and civil partnerships where one of you doesn’t pay tax and the other doesn’t pay more than the basic rate of income tax (20%).  It allows the non-tax payer to transfer up to £1,060 of their unused tax-free personal allowance to their partner, helping them save a maximum of £212 for 2015/16.  In future years the allowance will increase and will be set as 10% of the personal allowance.  The allowance can be claimed by registering at HM Revenue & Customs (HMRC) and will be included in the tax code of the higher earner from the summer.  Co-habiting couples who are not married/in civil partnerships will miss out, regardless of how long they have been together.

What does the Marriage Allowance mean?
The allowance means that a spouse/civil partner who is not earning at all or is earning below the basic rate threshold can transfer 10% of their personal allowance (£10,600 x 10% = £1,060 for 2015/16) to a spouse/civil partner – as long as the recipient of the transfer has income below the threshold at which higher rate tax becomes payable (£42,385 for 2015/16).

Who is eligible?
You will be eligible to make a claim if all of the following apply:
•    You’re married or in a civil partnership
•    You have an annual income of less than £10,600 – including pensions, savings and investments
•    Your spouse or civil partner has an annual income of between £10,601 and £42,385
•    You were both born on or after 6 April 1935

How do you apply?
You can register your interest in the Marriage Allowance at at any point in the tax year and still receive the full benefit of the allowance.  Once you have registered your interest, HMRC will contact you to tell you when you can make a formal claim.

How does it work?
One person in a couple who is not liable to income tax, earning below £10,600 will apply online to transfer their allowance to their spouse/civil partner, and HMRC will tell the recipient about the change to their Pay As You Earn (PAYE) tax code.  The recipient is eligible to a tax reduction of 20% of the transferred amount.

Who cannot benefit?
•    Couples who both have incomes above the personal allowance of £10,600
•    Couples where one is a higher rate (40%) or additional rate (45%) income tax payer
•    Couples who both have incomes below the personal allowance of £10,600; they would both pay no income tax and so cannot benefit from the transfer.

If you think you may benefit from the new allowance or would like more information regarding the Marriage Allowance, please do not hesitate to contact us.

JRW Chartered accountants in Edinburgh, Galashiels, Hawick, Langholm and Peebles.