Michael MacLeod, Financial Adviser
Posted in Financial Advice, Wealth Management on 18.11.19

Some of the best, most valuable financial advice doesn’t require reinventing the wheel. In fact, it can often be the most fundamental and obvious aspects of managing money which a financial planner can highlight and bring to a client’s attention, making a huge difference to financial wellbeing.

Marriage allowance. What is it and who qualifies?

In my experience, this is one of the easiest but most frequently overlooked areas of financial advice that can benefit many couples. Marriage allowance is a tax perk available to couples who are married or in a civil partnership, where one low earner can transfer up to £1,250 of their unused personal allowance to their partner. Essentially, you’re able to transfer some of your tax-free allowance to your spouse if you earn less than the current personal allowance. The government introduced the Marriage Allowance in April 2015 to ease the burden on families, saying at the time that it’s “families who raise our children, look after our old and keep our country going.”

The higher earning spouse, who must be a basic-rate taxpayer, will then receive a tax credit equivalent to the amount of personal allowance that’s been transferred to them. This is then deducted from the amount of tax they would usually have to pay. To be eligible, the low earning partner’s pay before tax must be less than the personal allowance which, in 2019-20, is £12,500.  The higher earning partner’s salary must fall between £12,500 and £50,000 (the threshold for higher-rate payers).

It’s a simple ‘win’ for clients with the right circumstances. Non-taxpayers have the chance to backdate up to 4 tax years’ worth of marriage allowance to their basic rate taxpaying partner (must be married/civil partnership). This could equate to a tax saving of £1,150 this tax year, and perhaps more if the personal allowance increases next tax year.

This sort of arrangement works best for couples where the non-taxpayer is receiving a taxable income that is less than the personal allowance, minus marriage allowance transferred. This year that would be £11,250.

The allowance will transfer to the spouse automatically every year unless you contact HMRC to cancel it, or your marriage comes to an end (either through divorce or death).

Who qualifies for marriage allowance?

In order to qualify you must fulfil the following criteria:

Be married or in a civil partnership.

  • Be born after 5 April 1935. (If one or both of the couple are born before this date, you should claim the ‘married couple’s allowance’ instead.) Have one partner with a salary below the personal allowance, and one partner earning more than the personal allowance paying the basic rate of income tax.

As we can see, marriage allowance isn’t an option for everyone and does have certain conditions that need to be met, but for those who qualify it’s a huge help to financial wellbeing.  If you’re not already aware, or are unsure of your entitlement, please don’t hesitate to ask your financial adviser, who will explore marriage allowance as one of the ‘quick wins’ of financial planning.

 

Michael MacLeod, Financial Adviser
Posted in Financial Advice, Wealth Management on 18.11.19

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