Revealed: How your partner can cut your tax bill

Revealed: How your partner can cut your tax bill

When paying your taxes each year it is possible to benefit from a multitude of tax allowance arrangements, with marriage being one of them. The married couples allowance allow those eligible to transfer funds from one married person to the other if certain conditions are met.

Marriage allowance

These conditions include being married, your partner or yourself earning less than the annual personal allowance of £12,500 a year, and being born after 6th April 1935. This being the case you can transfer 10% of the allowance (£1,250) to your partner or your partner can transfer it to you. This means the partner who earns less than £12,500 a year will receive £1,250 on top of their personal allowance (£12,500). 20% of the marriage allowance is provided as a reduction in tax. The personal allowance, on the other hand, is from your taxable income before tax is applied.  In order to apply for marriage, allowance you need to provide your national numbers for yourself and your spouse and a form of identification. For more information, you can look online on the HMRC website or call and apply by phone on 0300 200 3300

It is also possible to claim for marriage allowance from the past. It is possible to receive backdate allowance for up to four years. You must produce all the relevant information and bear in mind that the previous years of allowances could have different threshold and requirements so you could receive less or perhaps more than currently. The differing tax rates for non-taxpayers and basic rate payers are not the same, so this could affect the amount you receive. You can also receive back payments if your wife or husband has since died, but only up to the year they died if it was in the last four years.

Married couples Allowance

If you were born before 6th April 1935 you could still be eligible for married couples’ allowance, rather than marriage allowance. This isn’t necessarily a bad thing as this allowance is more genius than its replacement. This allowance is based on 10% of earnings rather than a fixed sum.

If you married before 5th December 2005 it is automatically the husband’s earnings that are used to calculate the allowance, however, this can be switched to the other spouse. If you were married after 5th December 2005 it is automatically calculated from the highest earnings regardless of which spouse those earnings are from. Civil partnerships are also included in this allowance and the criteria and allocation of allowances are the same as married couples. The 10% allowance is given to the higher earner as tax relief. So, the higher earner effectively pays 10% less tax. However, there are limits to this in terms of upper and lower amounts of tax and earnings that can be claimed and used for the allowance.

What about living arrangements?

It is not a requirement to cohabit with your wife or husband, so long as you are married – you can claim the married couple’s allowance. There are varying reasons why you might not, whether it be due to your spouse being in a residential home or you just like your own space.

This option is not available to those on the marriage allowance as living with your spouse is a requirement. So if one of you moved out for whatever reason without the other then you as a married couple, would no longer be able to claim the allowance. Working away from home, being in the armed forces, being in prison, training or education are all acceptable situations for one of the spouses to be in to be able to claim the married couple’s allowance. You and your partner can share the minimum amount of the allowance or transfer the whole allowance between the two of you. If your partner pays the tax you are able to transfer the allowance that you have not used because either you do not pay taxes, or your tax bill does not meet the threshold. Furthermore, if you give money to charity and pay tax using gift aid you can receive a further tax allowance if you were born before the 6th April 1938.

How much can you save?

For 2019/2020 tax year, you could save anywhere between £345-£891.50. If you think you may be eligible for this allowance you can look online at WWW.GOV.UK and use the calculator provided to determine if you can claim the allowance for you and your partner.

Summary

This blog has hopefully given you some useful information about how married couples can save money and use their marriage to benefit their financial situation. If you would like any more information or tax advice you could contract Contractor Unlimited whose Warrington based accountants are on hand to support you experts in tax and tax requirements and who will be sure to provide you with the information and assurances you need to make an informed decision about marriage allowance and married couples allowance.