MARRIAGE BREAKS

UPDATED 5 NOVEMBER 2015

From 6 April 2015 there are three distinct and separate income tax breaks for those who are married (a word I use to encompass civil partnerships, and ‘spouse’=‘civil partner’). One is new. Another is being phased out. And the third is not well known at all.

Marriage Allowance

The new tax break is called Marriage Allowance and applies to a married couple where (a) one partner has an income at or below below the personal tax allowance of £10,600 in 2015/16, (b) the other partner does not pay higher rate tax, which means they have an income no more than £42,385 and (c) neither was born before 6 April 1935.

If a couple qualifies then the non-taxpayer can transfer £1060 of their unused personal allowance to their spouse. That will save the taxpaying spouse basic rate tax on that amount which is £212 a year (£17.66 a month or £4 a week) in income tax.

Full amount:The transfer can only be for the full amount of £1060. That can be done even if the person transferring the amount has an income at or close to their personal tax allowance. So someone with an income of £10,000 who is a non-taxpayer can transfer the full £1060 leaving themselves with a personal allowance of £10,600-£1060=£9540. So they will start being a taxpayer and pay basic rate tax on £10,000-£9540=£460. So their tax bill will be £92. But their spouse will save £212 leaving the couple £120 better off.

Savings: If the person transferring the allowance has savings income then that is tax free up to £5000 on top of their personal allowance. That income does not affect the freedom to transfer the allowance.

Abroad: Normally the person receiving the allowance must have an income below £42,385. But if both spouses live abroad and have some income arising in the UK it is possible that someone with a high overseas income will still be able to receive the transferred tax allowance.

Future value: In future years the Marriage Allowance will rise as it is fixed at 10% of the personal tax allowance. So on present plans it will be £1100 in 2016/17, £1120 in 2017/18, and £1250 by 2020/21.

Claiming: To get the allowance you can claim online or on the phone through the income tax helpline 0300 200 3300. You will need National Insurance numbers and dates of birth for you and your spouse. Lines are open 0800-2000 Mon-Fri or 0800-1600 Saturday. 

The Revenue wants to encourage online or telephone claims. It will not be producing a paper form to fill in. However, it has confirmed to me that it can be claimed by simply writing a letter. It is not clear how quickly such a claim will be dealt with.

Tax code: Once the transfer has happened the one receiving the extra allowance will have a suffix M added to their tax code and the code itself will be 106 higher representing the full £1060 transferred. The one making the transfer will have a suffix N and their tax code will be 106 lower. These suffix letters are a handy way to check if the transfer has been done.

Once the tax code has been changed the benefit of the transfer will be felt in the next salary or pension payment. It will be backdated to the start of the tax year and then be reflected in in a reduced amount of tax for the rest of the tax year.

If the person transferring the allowance becomes a taxpayer they may have to make a payment to HMRC.

Take-up: When the policy was announced in December 2013 the Government estimated that 4.2 million couples would be eligible for the new allowance. HMRC says it hopes all of them will get it.

However, figures given to Oliver Letwin MP in September were that only 165,000 people had actually made the transfer. That leaves four million people who have not and who are losing £212 this year. A similar number had "started the process" and and 430,000 had registered their interest on line. In November HMRC refused to give out more up to date figures to me or explain why it would not.

Perhaps because those numbers given to Oliver Letwin are far worse than the original expectation. Estimates of the cost of the allowance by the Treasury indicate that it expected around 2.5 million to claim it in 2015/16 rising to no more than 3.25 million by 2017/18. That would leave more than 1.5 million eligible couples without it this year and around a million eligible couples without it in 2017/18.

These numbers now now seem hopelessly optimistic.

The allowance for 2015/16 can be claimed up to 5 April 2020 and backdated to this tax year.

Married Couple's Allowance

The Marriage Allowance cannot be claimed if either spouse was born before 6 April 1935 because they can already get a bigger tax break called Married Couple’s Allowance. That is a hangover from a concession that all married couples used to get until it was scrapped from 6 April  2000. But an exemption said that anyone aged 65 then (ie born before 6 April 1935) could still have the allowance.

In 2015/16 Married Couples Allowance is worth up to £835.60 off one partner’s tax bill. If income exceeds £27,700 the allowance can be reduced but it can never be less than £322. It can be claimed by a member of a couple now if one of them meets the age criteria. So an 83 year old marrying a 55 year old can claim it. It is normally given to the spouse with the higher income and part of it is transferable to the other spouse. If you can claim it then get it backdated for up to four tax years if you were eligible then. More information.

Blind Person's Allowance

There is a third allowance that a married couple can transfer between them. The Blind Person’s Allowance is £2290 in 2015/16 so is worth £458 to a basic rate taxpayer. However, if the blind person cannot make use of it all – has an income below £12,890 in 2015/16 – the unused portion of it can be transferred to their spouse.

To qualify for Blind Person's Allowance in England, Wales, and Northern Ireland you have to be registered with your local councils as blind or severely sight impaired. In Scotland you qualify if you cannot do work that requires sight. If both partners qualify they each get one allowance. More information.

5 November 2015

vs 1.62