Married couples might be missing out on the marriage tax allowance due to difficulties in applying for it or simply being unaware they are eligible. It is estimated that two million couples qualify for the tax-free allowance but haven't submitted an application for it.
Marriage Allowance Benefits: All You Need to Know
GOV.UK explains that the marriage allowance allows you to transfer of £1,260 of your Personal Allowance to your spouse or civil partner, which can make their tax decrease by up to £252 for the tax year running from April 6 to April 5 of the coming year. This is beneficial for couples where the income of the lower-earning spouse is below the Personal Allowance threshold, usually £12,570.
You can backdate claims to any tax year since April 5, 2020, during which you were eligible for the Marriage Allowance. However, there is a complication. The rules require the tax-paying spouse to be a standard rate payer, who earns between £12,571 and £50,270. Nevertheless, a loophole suggests that eligibility may still apply if incomes exceed £50,270, as long as you provide a contribution to a pension or make a gift aid donation.
Eligibility and Application Challenges of the Marriage Allowance
Submitting an application for Marriage Allowance can be challenging for many, as the provided instructions seem to be unclear.
Finance expert Martin Lewis has previously said: “There are around a staggering 2.1 million couples out there who are eligible for this, it is big money, and they are not claiming it.”
RSM tax specialists stated it has encountered many clients who were not allowed to get the marriage tax allowance by HMRC because of this problem. They suggest that potentially thousands may be discouraged from submitting an application for the allowance because of the “unclear” guidance provided on the gov.uk website.
In order to qualify for the Marriage Allowance, your spouse must be a basic rate taxpayer, making between £12,571 and £50,270. In Scotland, your spouse needs to pay the starter, basic, or intermediate rate, which typically means earning between £12,571 and £43,662.
Emma Newsome, a tax associate at RSM, stated: “The root of the issue lies with HMRC's unclear guidance. A person can remain a basic rate taxpayer when they make a personal pension contribution or gift aid donation in the relevant tax year. This means it is possible for an individual to have income exceeding the £50,270 basic rate threshold while remaining a basic rate taxpayer.”
RSM noticed numerous clients whose first marriage tax allowance claims were refused due to unclear instruction. Nevertheless, these claims were later approved after reapplication.
According to HMRC's estimations, nearly 4.2 million couples are eligible for the tax break, however, only 2.1 million have claimed it. As a result, about 2.1 million couples are not taking advantage of the benefit. Therefore, if only 0.5% of claims are wrongly dismissed or remain unsubmitted due to a misunderstanding of the rule, as many as 21,000 claims could be impacted.
However, HMRC has refuted these allegations. A spokesperson for HMRC said: “There are no problems with processing applications for Marriage Allowance. Eligibility is based on the rate of tax you pay. For the majority of people, this will be based on your income.”
Personal Finance guru Mr Lewis has previously stressed that only those in a formally recognised commitment can claim the ‘Marriage Allowance’, since it doesn’t apply to those living together. Martin clarified it’s an “important perk that can be very worthwhile”, especially as some people might be able to backdate the claim and get a one-time payment.
The GOV.UK provides an online Marriage Allowance calculator which is the quickest and easiest way for couples residing in Scotland, England, Wales, and Northern Ireland to check their eligibility for the tax boost.
How to Apply for the Marriage Allowance?
You can apply for Marriage Allowance online, and it's totally free, all you have to do is click here. If both spouses have no other income source apart from their wages, the one who makes lower earnings should be the one to make the claim.
The official gov.uk website recommends: “If either of you gets other income, such as dividends or savings, you may need to work out who should claim. You can call the Income Tax helpline if you're unsure.