Marriage Allowance - Unlocking Tax Benefits
Marriage Allowance is a hidden gem in the tax landscape that could make your bank account be a little happier. It is not just for number crunchers and spreadsheet enthusiasts; it's for everyday people, like you and me, trying to make the most of what we have. Let’s examining how it works and who can benefit.
What is Marriage Allowance?
It is a UK government initiative designed to help eligible couples reduce their overall tax bill. It allows a spouse or civil partner who earns less than their partner to transfer a portion of their unused Personal Allowance to their higher-earning partner.
How Does it Work?
The process is straightforward. The lower-earning partner can transfer up to £1,260 (as of the 2022/2023 tax year) of their unused Personal Allowance to their higher-earning partner. This, in turn, can reduce the higher earner's tax liability by up to £252 for the tax year.
Who is Eligible?
You can claim Marriage Allowance if all the following apply:
you’re married or in a civil partnership
you do not pay Income Tax or your income is below your Personal Allowance (usually £12,570)
your partner pays Income Tax at the basic rate, which usually means their income is between £12,571 and £50,270 before they receive Marriage Allowance
You cannot claim Marriage Allowance if you’re living together but you’re not married or in a civil partnership.
Who could Benefit?
1️⃣ Couples with Varying Incomes: If one partner earns less than the current Personal Allowance (£12,570 as of 2022/2023), they can transfer a portion to their higher-earning partner, optimizing tax efficiency.
2️⃣ Couples with Unused Allowances: The Marriage Allowance is particularly beneficial when one partner doesn't utilize their full Personal Allowance. Transferring it to the higher earner ensures that these allowances don't go to waste.
How to apply?
You can apply for Marriage Allowance online.
If you cannot apply online, you can apply:
through Self-Assessment if you’re already registered and send tax returns
by filling in Marriage Allowance form MATCF and sending it to the address on the form
How your tax code will change?
You and your partner will get new tax codes that reflect the transferred allowance. Your tax code will end with:
‘M’ if you are receiving the allowance
‘N’ if you are transferring the allowance
Leveraging the Marriage Allowance is a key component of effective tax planning. It requires a meticulous assessment of each partner's income, allowances, and potential tax liabilities. By strategically applying the Marriage Allowance, we can optimize our clients' tax positions.
It is not merely a tax provision; it's a tool for financial optimization.
