Tax blog for accountants

News and views from our experts.


Marriage Allowance benefit

written by Digita Support, 5 April 2016

By Gemma Pettit, Tax Support Specialist.

Transfer of Personal Allowance

When the government introduced the Marriage Allowance on 6 April 2015, they estimated that four million people would be eligible to claim it. However, as of February 2016, figures released suggested that only 8% of eligible couples had applied to transfer 10% of their Personal Allowance to their Spouse or Civil Partner.

Marriage allowance

What is the Marriage allowance?

Where someone earns less than their personal allowance (for 2015/16 this is 10,600), they can transfer 10% to their spouse, as long as their spouse is a basic rate taxpayer (i.e., their annual income is between £10,601 and £42,385). This has the effect of reducing the spouse’s income by £212 as their personal allowance will be increased to 11,660.

It is not possible to transfer more or less than 10%, so regardless of whether a person has £2,000 of unused personal allowance or £200, they will have to transfer £1,060 for 2015/16. If they have less than £1,060 unused personal allowance, they may, therefore, need to pay tax on the amount that exceeds the reduced personal allowance.

For example, if they earn £10,000 a year, their personal allowance for 2015/16 is £10,600, so if they transfer £1,060, they are left with a personal allowance of £9,540. This means that their earnings now exceed their personal allowance by £460 and they will need to pay basic rate tax on this, amounting to £92.  Assuming their spouse earns more than £11,600 and, therefore, receives the full saving of £212, as a couple, their overall saving is now £120.

The personal allowance for 2016/17 rises to £11,000 so the transferable amount for that tax year will be £1,100, giving tax relief of up to £220.

Please note that if either spouse was born before 6 April 1935, then the Married Couples Allowance will be more beneficial than the Marriage Allowance.

How to claim it?

To claim the allowance, individuals must register online via www.gov.uk/marriageallowance.  This must be done by the person transferring their unused personal allowance. It is not yet possible for Agents to claim on behalf of clients.

It is possible to apply retrospectively, but if you apply after the tax year to which it relates, it is only valid for that tax year and a further claim would need to be made for later years. If you apply during or before the tax year to which it relates, then the claim remains in place for subsequent years.  If applying retrospectively, it can be backdated up to 4 years, but no earlier than the year it was introduced (6 April 2015).

How is it applied?

Once HMRC have approved the claim, they will give the recipient’s extra allowance either:

  • via their tax code, which will usually be shown as 1166M (this can take up to 2 months to be issued), or
  • If the recipient is self-employed, they will claim it via their tax return. Interestingly enough, HMRCs servers do not currently recognise the receipt of additional personal allowance, and therefore, the figure in box 1 on the tax calculation pages, will show the amount before the extra personal allowance has been deducted. We, therefore, expect a few HMRC exclusions to arise from this.

The person transferring their personal allowance will also get a new tax code which will show the reduced amount ending with N.

How long does a claim last?

If the claim is made during or before the tax year to which it relates, then the personal allowance will transfer automatically to the spouse each year until it is cancelled or circumstances change.

The claim can be cancelled by either spouse and again, this is done online. The date it ends depends on who cancels it or what the change of circumstances are:

  • If the person transferring it cancels it, it will run until the end of that tax year.
  • If the person receiving it cancels it, then it will be backdated to the start of that tax year.

 

On Divorce / Civil Partnership being dissolved

  • The person transferring it can choose to either keep transferring to the end of the tax year or backdate it to the start of the tax year.
  • If the person receiving it asks not to receive it, it will run until the end of the tax year.

 

On Death

  • If the spouse dies after they have received additional personal allowance, their estate will have the higher allowance, but the transferring spouse’s personal allowance will return to the normal amount.
  • If the spouse dies after they have transferred their personal allowance, then their estate will have the lower allowance and the receiving spouse’s personal allowance will be at the higher level until the end of the tax year.
twitterlinkedinFacebookgoogle_plusmail

3 comments:

  1. 05-05-2017

    Gemma Pettit commented:

    I believe that this was correct at the time it was written and on speaking with our developers we’d be surprised if it was backdated all the way back, rather than just to the start of the year of change. As any stop would be dealt with outside of the tax return, we would recommend that you contact HMRC for clarification.

  2. 06-04-2017

    D Sellars commented:

    Hi,

    Re the timing of the partner cancelling the Marriage Allowance. The website says “If the person receiving it cancels it, then it will be backdated to the start of that tax year”; the HMRC site actually says “If your partner asks to stop receiving your allowance, HMRC will backdate the change to the start of the tax year you first started transferring it”.

    The HMRC words could be interpreted as meaning all previous years will be cancelled, i.e. from when you first started the allowance transfer. I hope that is wrong and your interpretation is right. Any comments please ?

  3. 29-03-2017

    Thomas Nolan commented:

    The info given re Marriage Allowance is incorrect.
    HMRC website states: ‘If your partner asks to stop receiving your allowance, HMRC will backdate the change to the start of the tax year you first started transferring it’ whereas you incorrectly state it will be backdated to the start of the (current) tax year.
    This would appear to be a very important distinction for future tax years.

Add a comment
please enter your name
please enter your email address
please enter your website address
please enter your comments

This page can be viewed at https://www.digita.com/pro/blog/index.php/marriage-allowance/

Copyright © Thomson Reuters, 2017