Did you know that there is a possible £900 available for married couples or those in a civil partnership thanks to the marriage tax allowance?
The marriage tax allowance allows couples to transfer some of their tax-free allowance between them. So if one of you pays tax and the other doesn’t, you can transfer some of your unused allowances to your partner, meaning they can earn more before paying tax.
To be eligible to claim marriage tax allowance the following MUST apply;
- You’re legally married or in a civil partnership. Just living together doesn’t count.
- One of you needs to be a non-taxpayer. This means you earn less than £11,850 (to back claim you need to have earned less than £11,850 in 2017/2018, £11,000 in 2016/2017 and £10,600 in 2015/2016).
- The other needs to be a basic 20% rate taxpayer. If you are a higher or additional-rate taxpayer then you aren’t eligible. This means you need to earn between £11,851 and £46,350 (£43,430 in Scotland).
- You both have to have been born on or after 6th April 1935
- If your partner has passed away after April 2015 and all the other criteria above fits, you can still apply.
£900 is only available for those who haven’t already claimed and are backdating their claim to 2015 which is when the marriage tax allowance began.
Once you have applied, it automatically gets renewed the following year. You only need to inform HMRC if your circumstances have changed making you no longer eligible.
How does it work?
Each person is allowed to earn £11,850 per year before they start paying tax. If you are earning less than £11,850 then you can transfer a maximum £1,190 of your unused tax to your spouse who is earning more than this. This means your spouse can earn an extra £1,190 without paying tax. Tax at 20% on £1,190 is £238, meaning your spouse is better off by £238 a year and backdating this to 2015 means a reimbursement of the tax you have already paid of £900.
How do I claim?
Claiming is really easy and takes a few minutes. I’ve already claimed for myself and my parents as my dad is charged tax on his pension.
The non-taxpayer must be the one to apply to transfer their allowance.
You can apply online at HMRC. You need both national insurance numbers and one of a range of acceptable forms of ID for the non-taxpayer. Or you can apply via the phone on 0300 200 3300. After applying you should receive confirmation of your application via email.
You can only apply for the years where you both met the criteria, so if the non-payer earned more than £11,000 in 2016/2017 then you cannot claim it.
If you were eligible to claim for the previous years, you have to select this option as part of your application process.
How will I be paid the backdated money?
Whether you apply online or by phone, any backdated money will be sent to you as a cheque.
How do I know if I’m a non-taxpayer?
If you expect to earn less than £11,850 between 6th April 2018 and 5th April 2019, then you are classed as the non-taxpayer. It doesn’t matter whether you work full or part-time, are unemployed, self-employed, not working because of retirement or health issues, or are on maternity leave. As long as you earn under £11,850 you are classed as a non-taxpayer.
What if you have less than £1,190 of unused allowance left?
You can still claim but it’s a bit more complicated. This is because you have to transfer £1,190 to take advantage, nothing more, nothing less. This means if you’ve less than £1,190 left of your allowance, you will exceed your allowance and means that you will have to pay tax on the amount you’ve gone over. For example, if I earned £10,900 a year I can still transfer £1,190 to hubby because I’m still under the £11,850 threshold. However, because I’m now only allowed to earn £10,660 tax-free and I’ve earned £240 more, I’ll be charged £48 tax. Hubby will still get to keep the £238 (the 20% tax he would have paid if I hadn’t transferred my allowance to him) but because I am having to pay £48, the net gain to us as a family is only £190, but still worth doing!
What if we’re both self-employed?
It doesn’t matter. As long as you both are eligible you can still apply. The only difference is a lower self-assessment bill.
What happens if halfway through the year we stop being eligible.
If that happens, HMRC will now know until the end of the tax year thanks to the way tax is calculated. At the end of the tax year, HMRC will reconcile your tax affairs and send a P800 calculation to recover any tax due in the following year through an adjustment to your tax code, via payroll or self-assessment.
What happens if we divorce or dissolve our civil partnership?
You need to contact HMRC to cancel the allowance.
For More information on the Marriage Tax Allowance, check out Martin Lewis and Money Saving Expert.