Half of eligible couples are missing out on the marriage allowance

Families could be up to £238 better off thanks to the marriage allowance – and here we tell you just how you can apply for the tax break.

The marriage allowance was introduced in April 2015 and more than four million married couples and 15,000 civil partners are eligible.

However, in 2016/17, only around half actually applied.

Designed for couples where one is a non-tax payer and the other a basic-rate tax payer, the marriage allowance allows you to transfer up to £1,190 of your tax-free allowance to your partner – netting you up to £238 a year.

Let us look at how it works

Sarah is a full-time worker earning £16,000 per annum, her husband Ben works part-time and earns £5,000. Ben could opt to reduce his personal allowance by £1,190, transferring the benefit to Sarah.

The couple save tax on the transferred allowance, which is a maximum of 10% of the personal allowance rounded up to the next £10 – so for this year the tax saving will be £238. It is worth knowing that this will not impact on the higher-earner’s national insurance contributions.

Those who earn via dividends income can also take advantage of this option. Colin is a director who pays himself an annual salary of £8,000 and receives a dividend payment of £30,000. His wife, Karen, earns £10,000 a year and elects to reduce her personal allowance, allowing her husband to increase his. As Colin’s dividend income is taxed at 7.5%, the tax saved is £1,190 multiplied by 7.5% – a grand total of £89.25.

You do not have to be married to apply for this; those in a civil partnership with the same person for the whole or part of the tax year at the time the claim is made are also eligible.

Have you missed out?

Do not fear, you have four years after the end of the tax year to claim so you could backdate your application. It is often worth waiting until your tax returns are complete before applying, as this shows your total earnings.

Who does this not apply to?

For those whose spouse is a non-UK resident, but comes from the European Economic Area, the transfer is still possible but with the restriction that the Transferring spouse’s income must be lower than the personal allowance. This may be scrapped completely after Brexit if the UK leaves the EEA.

If you separate or divorce during the tax year you may cancel your marriage allowance transfer for the current tax year. If, however, one partner dies then it is possible to make a backdated claim for the marriage allowance providing the deceased spouse or civil partner was eligible for it when they were alive. A claim can be made for any tax year in which you were both alive, including the tax year of death, although no claim can be made thereafter.

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