How individuals could benefit from the marriage allowance

April 6th, 2020 | Posted in Marriage Allowance, Self Assessment, Tax Planning

The marriage allowance enables 10% of one spouse’s annual personal allowance to be transferred to the other spouse, if certain conditions are met.

The marriage allowance could save married couples and civil partners £212 tax
The marriage allowance could save married couples and civil partners £250 tax

The marriage allowance is applicable to both married couples and those in civil partnerships and means that an individual not utilising their annual personal allowance could transfer a portion of that allowance to their spouse or civil partner.  The 2020-21 personal allowance is £12,500 and so 10% or £1,250 of this amount is potentially transferable, saving £250 in tax.  In order to qualify for the transferable allowance, one partner must have income between £12,501 and £50,000 and the other must have income below the annual personal allowance of £12,500.  Income includes earnings from all sources such as employment, self-employment, pensions, rental properties, interest and dividends.  The marriage allowance will not be available if either one of the partners is a higher rate taxpayer.

For those that qualify for the allowance, the individual with the lower income will need to elect for a reduced allowance.  This can be done on www.gov.uk’s website here and both spouses’ national insurance numbers will be required.  If the election is made in the actual tax year concerned, it will continue in future years unless the election is withdrawn in a later year.  The claim can also be made up to four years after the end of the tax year and if made retrospectively, it will only apply to the year in which the election was made.

As an example, if John earns £40,000 per year and his wife Lucy earns £10,000 for part-time work, Lucy can elect to transfer 10% of her personal allowance to John, which would increase John’s personal allowance for the 2020-21 tax year to £13,750, and save £250 tax.  Making this election would change both John and Lucy’s PAYE codes so that their employers deduct the correct amount of tax.

No Self Assessment late filing penalty for those who file online by 28 February BUT interest will be charged on any tax not paid by the 31 January 2021 deadline https://bit.ly/39g2kOg

VAT deferred between 20 March & 30 June 2020 can either be paid in full by 31 March 2021 OR by up to 11 smaller interest-free instalments made by the end of March 2022. More information released by HMRC here https://bit.ly/2JurqP9

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