Gareth Shaw: If you're not claiming marriage allowance, why not?
For all the joy that your wedding day brings, planning the big day itself is very stressful. With Lucky on our side, however, it couldn’t have been easier. And he loved to strike a deal – use his preferred caterer, and he’d chuck in some additional lighting for free.
In turn, his caterer threw in sausage butties for our guests at no extra cost. When you’re spending thousands on your nuptials, these freebies were a godsend.
But, it seems, offer married couples some free cash and they’ll completely ignore it. Data published by HM Revenue and Customs (HMRC) a few weeks ago revealed that more than one million couples across the UK have not claimed marriage allowance – meaning they could be owed up to £900 in tax rebates.
Marriage allowance allows some married couples and civil partners to lower their tax bill by transferring a low-earning partner’s tax-free allowance to their higher-earning spouse. It was introduced in April 2015, but to date, just three million couples have claimed it.
HMRC estimates that more than a million married and civil partner couples are eligible, but have yet to submit a claim.
So, how does marriage allowance work? Everyone has a tax-free “personal allowance”. This is the amount you can earn before income tax. In the current 2018/19 tax year, the personal allowance is £11,850.
If you earn less than this amount, you pay no tax. Now, if your partner is a starter, basic or intermediate-rate taxpayer, meaning they earn less than £43,430 in the 2018/19 tax year, you can transfer some of your unused personal allowance to them, helping to reduce the total amount upon which they pay income tax.
The maximum unused personal allowance that can be transferred is £1,190.
Let’s look at an example.
Say you earned £10,000. That would leave £1,850 of your personal allowance unused.
Your spouse earns £30,000. After their personal allowance is taken into account, they’ll end up with an income tax bill of £3,630.
But your spouse can now add the maximum £1,190 to their personal allowance, giving them a total tax-free allowance of £13,040. That would result in an income tax bill of £3,392 and a saving of £238 for the year.
What’s more, you’re able to back-date your claim for any tax year since 5 April 2015, which could boost your payment up to £900 if you were eligible in all years.
So, if you’re already receiving marriage allowance, make sure you’ve also claimed for previous years you were eligible. But remember, this only applies to couples where the highest earner pays the starter rate of 19 per cent, the basic rate of 20 per cent or the intermdiate rate of 21 per cent
Those earning enough to pay income tax at the higher 41 per cent rate do not qualify for this perk. If you want to claim marriage allowance, you can apply online at the government’s web portal – though you’ll need to supply a range of personal and tax information.
When applying, you can also opt to back-date your claim to include previous years. From then, HMRC will automatically transfer any unused personal allowance to your partner until one of you cancels the allowance.
And the good news is that there’s not much else for you to do. HMRC will adjust your partner’s tax code, so the extra allowance will be paid out through their salary. Alternatively, if they’re self-employed, it will be paid via their self-assessment tax return.
You should note that your tax code will also change if you’re employed or receiving a pension, to reflect the fact that you have transferred some of your personal allowance away.
If you’re making a back-dated claim, you’ll be quids in – up to £662 will be paid out as a lump sum after you’ve made your application.
So it turns out that, in the form of a government tax perk, every married couple and civil partnership has their own “Lucky”, happy to give you a little reward for exchanging vows. For the one million couples who’ve yet to cash in on it, there’s a little bit of payback for all the free lunches you dished out on your big day.
Gareth Shaw is head of Which? Money Online