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Making the Most of the UK Marriage Allowance

The news may be dominated by rising fuel, energy and cost of living prices, but there are several ways to streamline your tax liabilities and claim allowances to soften the blow.

One under-utilised option is the Marriage Allowance, open to either married couples or civil partners, with a limit equal to 10% of your Personal Allowance - so £1,260 for the 2021/22 tax year.

Today we'll run through how the allowance works and why it could save you up to £1,220 before we hit the end of the current tax year in just three weeks.

UK Marriage Allowance Tax Relief

The concept is that if you're in a legally recognised partnership, and one of you pays tax at the basic 20% rate, and the other doesn't work or earns less than the Personal Allowance, you can share your tax-free allocation between you.

In this current tax year, we all have a Personal Allowance of £12,570, which has been frozen, so it won't change on 6th April 2022.

Here's a snapshot of how it works:

  • The partner earning under the allowance transfers 10% of that tax-free entitlement to the other.
  • The receiving partner applies the extra entitlement to their Income Tax account, reducing any payments owing by £252.
  • Claims can be made at any time and backdated across the previous four tax years.

Retrospective claims mean that a couple could be eligible for a tax rebate of £1,220 in a lump-sum payment or applied as a credit to offset future Income Tax liabilities.

This tax relief was launched in 2015, but only around two million couples have claimed to date, so many more likely meet the qualification criteria.

Eligibility for the Marriage Allowance

Applicants can submit their claim online through the HMRC portal and apply straight away if their circumstances have changed.

The eligibility criteria include several scenarios, including where one partner has retired, and the other remains working, where a partner is taking a career break or is on unpaid leave, or where a couple has recently married or entered into a civil partnership.

Perhaps one of the reasons for the low take up is that Marriage Allowances are not automatically applied - you have to submit a claim to benefit from the tax relief.

However, once you have claimed this will roll over to the next tax year; you don't need to do anything unless your work or income changes, in which case you should notify HMRC.

Applying for Alternative Tax Allowances

Several other types of tax relief or allowances may be advantageous when inflation and living expenses are climbing.

Some of the available schemes include:

  • Trading and Property Allowances: an annual tax-free entitlement of £1,000 related to income arising from property or trading. The allowance applies separately, so if you receive earnings from both property and trade, you can claim a £2,000 allowance.
  • Maintenance Payments Relief: Income Tax relief of up to 10% of the value of maintenance payments made to a previous partner or spouse.
  • Personal Savings Allowance: taxpayers can earn a certain amount of savings interest without being liable for tax. The limits are £1,000 for people in the basic rate band, and £500 for higher rate taxpayers. The allowance doesn't apply to additional rate bands.
  • Dividend Allowance: if you receive dividend income from your own business or as a return on an investment, the first £2,000 is tax-free.

Note that most allowances aren't applied directly by HMRC, so you normally need to lodge a claim online or contact the tax office.

Therefore, it is well worth exploring the opportunities to reduce your tax bill, as some reliefs may have time limitations, so any allowances not utilised may be lost.

If you would like further information about any of these tax relief options or to discuss any other allowances you may be eligible for, please get in touch with the SAS Accounting team.