Meg Saksida points out the income tax benefit from being married (or in a civil partnership).
Although called the marriage allowance (MA), the benefit of the MA is available both for those couples that are married, and those in a civil partnership.
The advantage is that if one of the couple does not have enough income to utilise their full personal allowance (PA), they can elect to donate 10% of their unrequired PA to the other. If the maximum MA is elected for, this could save the couple up to £252 a tax year.
Due to the national minimum wage and national living wage, a taxpayer working full time will generally always require their PA. This allowance is really only useful then, to couples where one party either is not working, or working part-time, and earning under the PA of £12,570 (for 2021/22).
The conditions
(1) There needs to be a legal partnership
In order to be able to transfer a part of the PA, the donating partner will firstly need to be legally married or in a civil partnership. This will be required in both the tax year when the election is made and the tax year for which the election is made (if earlier).
If the couple have separated during the year, this does not impact the eligibility of the MA provided they are still married. Once they are divorced, however, it will no longer be available.
If one of the couple has passed away, an election can still be made by the surviving partner, or if the donor partner was the one who died, the PRs can make the election.
(2) The MCA may not also be claimed
The MA cannot be claimed if the married couples allowance (MCA) has been claimed. These are mutually exclusive allowances.
The MCA is only relevant for those individuals aged 87 or over (for the tax year 2021/22), so for those taxpayers a choice will need to be made as to which allowance is the more beneficial (this will usually be the MCA).
(3) Both the couple need to be basic rate taxpayers
In order to be eligible for the MA, neither one of the couple may pay tax at anything other than the basic and dividend ordinary rates.
This will mean (for 2021/22) that their total personal income from non-dividend and dividends sources will be under £50,270. This allows the PA to be deducted, leaving the basic rate band of £37,700; non-dividend income taxable at 20% and 7.5% being the dividend ordinary rate.
(4) The election must be made on time
Finally, the election needs to be made by the donating partner within four years of the tax year to which the election refers. For example, for the tax year 2021/22, the election will need to be made by 5 April 2026.
The good news is, however, once the election is made, it will not need to be made again and will be assumed to continue until it is cancelled or the conditions are no longer satisfied.
The calculation
The donor spouse will have less PA (only 90%), but the recipient spouse does not get 110% of a PA. Instead, they have a tax reducer of the 10% rounded up to the nearest £10 (£1,260) multiplied by the basic rate of 20%; hence, the tax reducer of £252. It is designed like this so that if the recipient spouse does not have tax to pay, there can be no repayment because of the MA.
Practical tip
As there is a four-year period before the election needs to be made, it is now possible for couples to apply to backdate their claims for all or any of the previous four tax years. By doing this, a tax refund of up to £1,220 may be available.
