Around 2 million people in Britain qualify for an underused tax relief scheme from HM Revenue and Customs (HMRC) but fail to take advantage of it. Called the Marriage Tax Allowance, this government scheme allows couples to transfer their unused personal tax allowance to their spouse.
While couples of all ages can take advantage of this HMRC tax break, many older Brits do not realise that it can also be used to avoid up to £252 in tax on their retirement incomes. This can mean avoiding paying any tax on fixed private and State Pension incomes.
This lesser-known tax rule is of particular use when there is an income disparity between a husband, wife, or civil partner. The marriage tax break allows a spouse to transfer as much as £1260 of their unused personal tax allowance to their partner, boosting their tax-free income threshold.
With the personal tax allowance currently at £12,570 for people with incomes under £100,000, this can boost the total household income for married older Brits where one person in the partnership has a smaller pension income, which will often fall well below this annual threshold.
It should be noted that if either spouse has an income over £50,270 this tax break does not apply, but few people claiming a pension will have to take this into consideration. For those under this threshold, the maximum amount of tax-free income rises to £13,830 for the higher-earning spouse.
Transferring this maximum amount works out as an annual tax saving of £252, the Sun reports, a helpful amount of money for the thousands of older people who have lost access to the Winter Fuel Payment after Labour’s cost-cutting decision to restrict the benefit. Previously a universal benefit for older people, now only the poorest pensioners will get the £200 to £300 cash help with their heating bills.
Pensioners pay tax in the same way as working-age Brits. In partnerships where one person receives the full State Pension of £11,502.40 without other income would be able to pass £1260 of their unused tax allowance to their partner and increase their monthly income.
Who can claim the Marriage Tax Allowance
This HMRC tax break is for anyone who is married or in a civil partnership where one person pays income tax at the basic rate of 20 per cent, while the other earns under £12,570. The basic rate of income tax is payable on all incomes under £50,270.
Anyone who has missed out on this tax break and has qualified in previous years is even able to backdate their claim as far as April 5 2020 – meaning they could be owed as much as £1008 by the taxman.
Once the tax break is in place, it will be automatically applied to the higher earner’s tax-free income going forward, or until you cancel the Marriage Tax Allowance. This could be due to a change in income or the ending of the relationship.
Applying for the underused tax break is simple and can be completed online. HMRC advises people to check their eligibility “in 30 seconds” with their Marriage Allowance calculator.
Then couples can apply through the HMRC website or by calling 0300 200 3300. You’ll need your National Insurance number and ID to hand.
