Gift of tax relief. As if digging around in your finances wasn’t enough for HMRC, one of its recent press releases seemed to be delving into relationship guidance by suggesting that couples could give “the gift of Marriage Allowance on Valentine’s Day”. The advice was of course offered tongue in cheek but with a serious underlying message. Namely, that married couples or those in a civil partnership could save up to £252 per year by making a simple claim.

Not too late. Valentine’s Day has been and gone but it’s still possible for couples to follow HMRC’s advice and claim the marriage allowance . In fact, you have four years in which do so. For example, for 2022/23 you have up to and including 5 April 2027 to get your claim to HMRC.

What is it? The marriage allowance is the transfer by one spouse or civil partner of part (approximately 10%) of their tax-free personal allowance (currently £12,570) to the other. For 2022/23 it’s £1,260 p.a., for which the tax saving is 20% (£252). A claim, which must be made jointly, is worthwhile where the donor spouse/partner’s taxable income is less than their personal allowance .

If you’re married or in a civil partnership and you or your partner’s annual taxable income is less than your tax-free personal allowance (currently £12,570), around 10% of it can be transferred from one to the other. This can save income tax of up to £252 per year.

How to claim marriage allowance….!

HMRC’s public guidance for claiming the marriage allowance is unclear. It says that to be eligible the spouse/partner making the transfer must have income of less than the personal allowance (£12,570 for 2021/22, 2022/23 and 2023/24), and the other spouse/partner’s income must “usually” be less than £50,270, i.e. the basic rate tax threshold. In fact, the legislation says nothing about either the transferee’s or transferor’s level of income or the basic rate threshold.

The legislation says that the spouse/partner receiving the marriage allowance must not be liable to tax at a rate higher than the basic rate. The £12,570 and £50,270 income limits referred to by HMRC are not mentioned in the rules. Whilst we understand that HMRC’s guidance is intended to be helpful and applicable to many couples, it can cause confusion for individuals and HMRC officers.

Note that the amount of income you can have and only be liable to tax at the basic rate can be increased by tax deductions and reliefs you are entitled to on top of the personal tax allowance. For example, personal pension contributions and qualifying loan interest.

Even if HMRC refuses a claim made during the tax year for which the marriage allowance is due, you can claim it after the tax year ends, e.g. on your self-assessment form.

Because the marriage allowance is a fixed amount it can’t be reduced to make it more tax efficient. It can even create a tax bill for the transferring spouse.

Example. For 2022/23 Graham’s income is £80,000 and his wife Sally’s is £12,000. They claim the marriage allowance. This means the full £1,260 is deducted from Sally’s personal allowance (reducing it from £12,570 to £11,310). Graham’s personal allowance increases to £13,830 from £12,570. This saves him tax of £252 (£1,260 x 20%). But Sally now has to pay tax of £150 she would not have done if the marriage allowance had not been claimed. That’s because she only has tax-free allowances of £11,310 to deduct from her pay of £12,000 leaving £690 taxable at 20%. The net tax saving is just £114 (£252 - £138).

A claim for marriage allowance made during the year to which it applies will continue to apply for all subsequent years until either the conditions for claiming it cease to be met or the claim is withdrawn. By contrast, if you make a claim after the end of the tax year it only applies for that year.