Personal Tax

Married Couples Allowance

Married Couples AllowanceThe married couples allowance for 2019/20 is £250. This is tax free cash which an estimated 700,000 couples don’t claim. Better still, you can claim back for the previous 4 tax years. As a result the total tax rebate can be as high as £1,150. This total is explained later.

What is the Married Couples Allowance?

Most taxpayers in the UK have tax free allowances. The most common is the personal allowance, which allows individuals to earn £12,500 (2019/20 rate) tax free before they pay income tax.

Typically, individuals with earnings below the personal allowance will waste some of their tax free amount each year. For example an individual with only £7,000 earnings will be wasting £5,500 of their tax free allowance.

Wouldn’t it be good if you could transfer some of this unused tax free allowance onto your partner so their tax free allowance is higher? Thus, resulting in them paying less income tax.

This is what the married couples allowance sets out to achieve.

How much of the Personal Allowance can be Transferred?

An individual can transfer 10% of their personal allowance. In the tax year 2019/20 the personal allowance is £12,500. As a result the married couples allowance transfer amount is £1,250.

Increasing your partners’ personal allowance by £1,250 will reduce their income tax liability by £250. (Income tax rate is 20% for basic rate taxpayers, therefore £1,250 x 20% equals £250).

Married Couples Allowance Example

A married couple has partner 1 earning £7,000 per annum and partner 2 earning £32,000 per annum.

Without married couples allowance the income tax liabilities would be as follows:

Partner 1 Partner 2
Earnings £7,000 £32,000
Personal Allowance £12,500 £12,500
Taxable Earnings £Nil £19,500
Basic Rate Tax Rate 20% 20%
Income Tax Payable £Nil £3,900

 

With married couples allowance claim the income tax liabilities would be as follows:

Partner 1 Partner 2
Earnings £7,000 £32,000
Personal Allowance £11,250 £13,750
Taxable Earnings £Nil £18,250
Basic Rate Tax Rate 20% 20%
Income Tax Payable £Nil £3,650

The tax reduces from £3,900 to £3,650, which is the £250 tax free cash amount mentioned earlier.

Who can Claim the Married Couples Allowance?

To be able to claim the married couples allowance the following conditions must apply:

  • Must be married or in a civil partnership (co-habiting couples don’t count)
  • One individual must earn under £12,500 (2019/20 personal allowance)
  • Their partner must be a basic tax rate payer. That is to say they earn between £12,500 and £50,000 (2019/20 tax rates)
  • Both individuals must be born on or after 6 April 1935

To summarise, you must be a non-taxpayer and your partner is a basic rate taxpayer.

How Much can you Claim?

The married couples allowance reclaim for the tax year 2019/20 is £250. This can be increased to a tax rebate amount of £1,150. This is possible by back dating your claim up to the maximum of 4 years.

This is illustrated as follows:

  • 2018/19 tax year – £238 reclaim
  • 2017/18 tax year – £230 reclaim
  • 2016/17 tax year – £220 reclaim
  • 2015/16 tax year – £212 reclaim

Add onto these figures the £250 for this tax year and the total amount is £1,150.

Making a Claim for Previous Years

To be able to reclaim married couples allowance for previous years you must satisfy the conditions for that tax year.

The tax allowance rates change every year so you will need to check for each year that you were a non-taxpayer and your partner was a basic tax payer.

As an example to be able to claim the £212 in the tax year 2015/16, the following conditions apply:

  • You must have been married or in a civil partnership
  • Partner 1 must earn under £10,600 (Personal Allowance rate 2015/16)
  • Partner 2 must earn between £10,601 and £42,385 (2015/16 Basic Rate Tax)
  • Both born after April 1935

How to Claim the Married Couples Allowance

The easiest way to claim the married couples allowance is to apply online using this HMRC link.

The information required includes National Insurance Numbers and a form of Identification.

Should you encounter any problems with the online process or if you would prefer to apply over the phone, the HMRC contact number is 0300 200 3300.

IMPORTANT: It must be the non-taxpayer who makes the claim. They are authorising for part of their tax allowance to be transferred.

What Happens after you’ve Applied for the Allowance

First of all you will receive an email confirming that they have received the application. If successful the following will happen:

  • Claims relating to the current tax year 2019/20 will see an adjustment in the tax coding notices. The non-taxpayer tax code will include an N and the basic rate taxpayer will have an M added to their tax code.
  • Claims relating to backdated tax years will be paid typically in the form of a cheque.

You don’t need to reapply in future tax years. Typically the tax code will continue to include the married couples allowance.

Non-taxpayer Earns £12,000

The married couples allowance allows for the transfer of 10% of the personal allowance. It is either 10% or nothing.

Therefore a situation can arise where the non-taxpayer after transferring 10% of their personal allowance will need to pay income tax.

For example a non-taxpayer earning £12,000 can still claim the married couples allowance in 2019/20.

Their new personal allowance will be £11,250 and as a result will pay tax on £750, which is £150 tax.

Partner 2 would still be saving £250 in tax, so the total tax paid by both partners will still be lower. In this example it is £100 less tax. It is therefore almost always worth claiming whenever possible.

When Should you NOT Apply for the Married Couples Allowance?

There is one situation in which you should NOT apply for the allowance. That is where both incomes are close to the personal allowance, with one just below and one just above.

Taking the example above where partner 1 earns £12,000. After transferring 10% of their personal allowance they would pay additional tax of £150.

It is therefore only worthwhile doing the transfer if partner 2 saves over £150 in tax. In this particular example partner 2 would need to earn more than £13,250. Earnings below this amount would result in a net loss.

This situation would be very rare but it is worth checking when both incomes are extremely close to the personal allowance.

Conclusion on the Married Couples Allowance

As stated an estimated 700,000 couples are being offered £250 cash but aren’t claiming it. This can increase to £1,150 if you can claim back the full 4 years.

Don’t be one of those statistics. The claim is easy to do online or over the phone – 0300 200 3300.

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