One of our main points of focus at this time of year is the preparation of self assessment tax returns and we are seeing an increasing number of cases which involve the marriage allowance. This is not to be confused with the married couples allowance. This latter allowance is only available to taxpayers where one of the couple is born before 6th April 1935
The marriage allowance is only available to married couples and those in a civil partnership. Whether the recent court case on the matter of widowed parent allowance where it was found that the fact this state benefit was only available to couples who were either married or in a civil partnership was found to be unlawful will ultimately have any impact on the marriage allowance is not known and is beyond the scope of this newsletter.
The allowance can be claimed in circumstances where one of the couple has income which is below the personal allowance threshold. If this is the case they are able to transfer a percentage of their unused personal allowance to the other partner providing they are not a higher rate taxpayer.
The percentage of the allowance that is available for this transfer is 10%. For the current tax year that transfer is £1,185 and for the 2017/18 tax year it is £1,150. The effect of this is to reduce the taxable income of the recipient of the allowance and therefore a reduction in the tax liability at 20% is available meaning in many instances a refund of £237 for the current year or £230 for last year.
One matter to be aware of is that the transfer of the allowance is made in full and there is the possibility that the transferring partner may have income just below the personal allowance and if there is a transfer of the 10% of the allowance their income may then exceed the 90% of the allowance they still have left. In this case they will end up with a tax liability but as this will be less than the benefit to the partner receiving the allowance it is well worth pursuing. The following example illustrates how this will work.
Let us take a married couple with a husband having income of £20,000 and a wife income of £11,000 for the 2017/18 income tax year. Clearly the income for the wife is below the personal allowance threshold of £11,500 and thus she is able to transfer £1,150 of her allowance to her husband. As he is a basic rate taxpayer he will obtain a refund/tax reduction of £230.
However as the wife’s allowance has gone down to £10,350 (i.e. £11,500 less £1,150) she has taxable income of £650 being the difference between her new allowance and her income of £11,000. Thus she will have a tax liability of £130 which H M Revenue & Customs will seek to recover in due course either through self assessment if she meets the criteria for this or through the direct tax collection process.
In this case the household is better off by £100. Naturally the costs of making the claim need to be considered although this can be done quite easily online.
Quite a number of taxpayers will have fluctuating income particularly those with self employed income as well as property portfolios and this will need to be looked at in detail each year. Furthermore if there is a part time worker in the household whose income can fluctuate around the personal allowance level, the annual changes in this income can sometimes be overlooked in terms of claiming this allowance and should therefore be borne in mind each year when preparing the tax return of the higher earning spouse.
If you believe you may be eligible for this allowance please speak to your contact here at LBW who will be glad to assist you.Last modified on