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In sickness and in wealth: Marriage Allowance explained

In sickness and in wealth: Marriage Allowance explained, image of a couple getting married | Crunch

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    In April 2015 the Conservative Government introduced the Marriage Allowance policy. The policy allows some couples to share their personal tax allowance and potentially save on the amount of Income Tax they pay.

    What is Marriage Allowance?

    Marriage Allowance is a method of sharing a Personal Allowance - the amount you are able to earn before paying any Income Tax - to decrease the amount of Income Tax one person in a couple pays.

    If you’re in a couple, one of you pays basic level Income Tax and the other is exempt from paying Income Tax because they earn less than the Personal Allowance.

    The person who is exempt from paying Income Tax can share some of their personal allowance with their partner.

    Who is eligible for Marriage Allowance?

    To be eligible for Marriage Allowance you have to be married or in a civil partnership. One of you has to be earning the Personal Allowance threshold or less (making them exempt from paying Income Tax) and the other has to be taxed at the basic rate. You can find the current tax rates here.

    How does Marriage Allowance work?

    Under the Marriage Allowance policy, the person who earns the personal allowance threshold or below is able to transfer up to £1,250 of their Personal Allowance to the person paying the basic rate of tax.

    This is done by registering with HMRC, who will change your tax code. From then on the amount of Marriage Allowance you are eligible for will transfer to your partner every year unless you cancel the arrangement.

    With a sole breadwinner

    Here’s how Marriage Allowance works out in the case of a couple with only one earner for the tax year 2020/21.

    Sarah Jimmy
    Without Marriage Allowance
    • Salary: £32,500
    • Personal Allowance used: £12,500
    • Taxable income: £20,000
    • Income Tax paid: £4,000*
    • Salary: £0
    • Personal Allowance available: £12,500
    • Income Tax paid: £0
    With Marriage Allowance
    • Salary: £32,500
    • Personal Allowance used: £13,750
    • Taxable income: £18,750
    • Income Tax paid: £3,750
    • Salary: £0
    • Personal Allowance available: £11,250
    • Income Tax paid: £0
    Tax saving with Marriage Allowance: £250

    *Assuming they’re not a Scottish resident – Scotland has different tax rates

    With both partners earning

    And here's how it breaks down when both partners are earning.

    Sarah Jimmy
    Without Marriage Allowance
    • Salary: £20,000
    • Personal Allowance used: £12,500
    • Taxable income: £7,500
    • Income Tax paid: £1,500
    • Salary: £10,000
    • Personal Allowance used: £10,000
    • Personal Allowance remaining: £2,500
    • Income Tax paid: £0
    With Marriage Allowance
    • Salary: £20,000
    • Personal Allowance used: £13,750
    • Taxable income: £6,250
    • Income Tax paid: £1,250
    • Salary: £10,000
    • Personal Allowance used: £10,000
    • Taxable income: £0
    • Income Tax paid: £0
    Tax saving with Marriage Allowance: £250

    How much does Marriage Allowance save?

    Marriage Allowance can save up to £250 in the initial year. This calculation is based on being able to transfer the maximum amount of personal allowance (£1,250).

    The amount individual couples will save in tax will vary based on how much of their Personal Allowance they use, and their earning levels.

    How do I claim Marriage Allowance?

    You need to register your interest with HMRC who will send you the information in the post.