The hidden income tax benefit of marriage
You recently got married and a relative joked that you can save lots of money because of the tax breaks for married couples. As a newly wed are you entitled to a reduction in your income tax bill? Sam Scott from our Hawick office clarifies.
If you got married over the summer you will have a list of related administrative tasks to do. Near the top of that list should be working out how to organise your finances to reduce your overall tax bill. You should also check whether you would benefit from claiming the marriage allowance. As a relatively small tax break only available to some married couples or civil partners, you’d expect it to be a straightforward task. Unfortunately, HMRC guidance makes it more difficult than it needs to be.
We don’t advise using HMRC’s marriage allowance calculator. It doesn’t always give the correct answer.
Marriage allowance
The marriage allowance allows you to transfer 10% of your personal allowance to your spouse. This currently equates to £1,260, saving up to £252 (£1,260 x 20%) per year.
You are still entitled to the full amount for the year in which you get married.
However, to qualify, neither of you can be higher or additional rate taxpayers.
EXAMPLE. Andrew is a higher rate taxpayer with an annual salary of £100,000. His wife Laura has no income. They cannot claim the marriage allowance and Laura’s personal allowance is wasted.
Should you claim?
If your income is between £13,830 and £50,270 and your spouse’s income is below their personal allowance (£12,570), you will benefit from the marriage allowance. Keep in mind that it’s an all or nothing claim which means your spouse could end up paying tax. However, it could still save tax overall.
EXAMPLE. Debbie earns £45,000 and her husband Simon is self-employed, earning £11,700 per year. They claim the marriage allowance and Simon’s personal allowance is reduced to £11,310. He now has to pay 20% tax on the difference, costing £78. Debbie’s tax liability reduces by £252, so as a couple they save £174 overall.
The problem with dividends
What HMRC guidance won’t tell you is that you can still benefit from the marriage allowance if the lower earner’s income exceeds the personal allowance, e.g. if they have dividend income.
EXAMPLE. Debbie earns £45,000 and her husband Simon has dividend income of £15,000. They can claim the marriage allowance. Simon will have to pay an extra £135 (10.75% x £1,260). Debbie’s tax liability is reduced by £252, so as a couple they save £117 overall.
You should wait until after the end of the tax year to make a claim so you can check that it will be tax efficient. And you should check each year that your circumstances change.
How to claim
You can apply online or on your tax return if you’re in self-assessment. If you both complete tax returns, the spouse transferring their allowance needs to file at least three days before the other.
IN SUMMARY
You can claim the marriage allowance providing neither of you is an additional or higher rate taxpayer. This will save you up to £252 per year if your spouse’s income is below £12,570, or they pay a lower rate of tax than you because they receive dividends.
If you would like to discuss this further with the JRW Hogg & Thorburn team please do get in touch.
