UK couples can enhance their tax-free income by utilizing the Marriage Allowance, which allows one partner to transfer a portion of their unused personal allowance to the other. Although the Personal Allowance has been steady at £12,570 for several years, this scheme effectively raises it to £13,830 for eligible couples.
The Marriage Allowance works by enabling the donor spouse or civil partner—typically the one with lower or no income—to transfer £1,260 of their personal allowance to their partner. This transfer reduces the recipient’s taxable income by £1,260, resulting in a tax saving of £252 annually.
For example, consider Sarah, a stay-at-home parent with no income, and her partner James, earning £40,000 a year. Since Sarah does not use her full personal allowance, she can transfer £1,260 to James. This reduces James’s taxable income and saves the couple £252 in tax for the current year.
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Importantly, couples who have not claimed the Marriage Allowance before can backdate their claim by up to four tax years. This means Sarah and James could receive a lump sum refund of £1,008 (£252 x 4) from HMRC in addition to the current year’s savings, totaling £1,260.
Once the claim is made, HMRC updates the tax code accordingly, effectively raising the tax-free personal allowance for the recipient to £13,830 for the year.
Despite the clear benefits, many people remain unaware of the Marriage Allowance. HMRC does not widely publicize it, and unless individuals are particularly tax-savvy or have expert advice, it is easy to overlook.
There are eligibility rules to consider: if one partner is a higher-rate taxpayer (earning over £50,270), the couple cannot claim. Also, both partners must not each earn more than £12,570 to qualify. However, for those who meet the criteria, applying for the Marriage Allowance is a straightforward way to reduce their tax bill.