Marriage Allowance

What is marriage allowance?

Your household can pay a little bit less tax.

Marriage Allowance was set up a few years ago and is one of those things that goes away and returns. Essentially, it’s the Government encouraging and rewarding marriage through the tax system. You can make your own judgment, but this is how Marriage Allowance works. It’s one of several ways people on low incomes can potentially save money on their taxes. To be eligible, you must be married or have a civil partner; living together doesn’t count. To qualify for Marriage Allowance, one person in the relationship must earn below the personal allowance. Your personal allowance is the amount of money that you can make before you start paying income tax. Essentially, one of you has to be a non-taxpayer; the other has to be a basic 20% rate taxpayer. The current tax year (2022-23) is currently at £12,570, which is how much you make before you start paying tax. So, let’s say you’re earning £11,500. That means you’ve got £1,000 of personal allowance that you’re not using. What you can then do is allow your partner to earn an extra £1,000 before they have to start paying tax. This means that, while you might end up paying higher tax, your partner will get a tax credit – meaning you both benefit from saving money on income tax.

Marriage Allowance works well when you have one person that’s BELOW the threshold and one who is ABOVE it.

If you’re in a position where you can transfer the full £1,256 to your partner, this could save you £252, but you don’t need to share the whole thing. So, if you only earned £500 below the threshold, you can transfer that, and they can benefit from £100 less tax paid. There is a catch, however, as you need to be married or in a civil partnership. The person who has the extra allowance has to transfer it to the person who does not. The person with the additional allowance typically has to earn below £12,570 to make it worthwhile. Technically, you can do it if they’re not, but there’s no real advantage of doing it. One person needs to be earning below that threshold amount.

On the other hand, your partner has to earn over that amount and needs to be a basic rate taxpayer.

This means they need to make between £12,570 and £50,270. They won’t qualify for this allowance transfer if it goes over that. You can do this if you are earning income from a pension. If you are making below the threshold amount, you can transfer your allowance to your partner even if you’re getting money from a pension. Ultimately, it comes down to whether you meet that threshold for paying tax to end up paying less tax. Couples can even backdate their application for the previous four tax years. In doing so, they can receive a tax refund which could really help towards daily living costs such as household bills. The idea behind Marriage Allowance was to ensure that, as a couple – and as a household – you pay a little bit less tax. It’s also there to encourage people to get married. Now, whether that’s an old-fashioned idea or not, you might as well get married if you can benefit from the system.