The UK Government's recent decision to freeze income thresholds could result in unexpected tax liabilities for around 127,680 married couples in the 2024-25 tax year. This is due to the potential loss of the marriage allowance tax relief currently enjoyed by around 2.3 million couples.
 Marriage Allowance Tax Break
The Marriage Allowance is a tax reduction scheme for married couples. It permits the spouse with the higher income to transfer £1,260, or 10% of their personal allowance, to their partner.
The partner, who must be a basic taxpayer, then receives a tax credit equivalent to the amount transferred. This can result in annual savings of up to £252.
You can only claim a marriage allowance if one partner has a taxable income below the personal allowance (currently £12,570), while the other partner's taxable income is within the basic rate of income tax.
However, with income thresholds expected to remain static until the 2028-29 tax year, it is anticipated that almost 3 million taxpayers will face higher marginal tax rates.
A further 128,000 couples are estimated to lose eligibility for the marriage allowance when their combined incomes exceed the threshold.
Exceeding the £50,270 threshold to become a higher-rate taxpayer by even one pound means losing the ability to claim the allowance.
The Impact on Senior Citizens
Senior citizens are likely to suffer disproportionately from this situation, as investment income may push them over the higher rate tax threshold or cause their annual income to exceed the personal allowance.
Due to the rise in interest rates, the number of taxpayers liable to income tax on savings interest has increased by one million in one year. For instance, a basic taxpayer can earn up to £1,000 in interest tax-free.
However, this drops to £500 for higher rate taxpayers. So, an individual with £20,000 in a deposit account paying 5% will have to pay £200 extra tax.
How About the Retirees? Well, The same is true for retirees, as they have not benefited from the recent cuts in personal income tax.
Apart from the commitment to increase the state pension each year in line with inflation, wages or 2.5% (whichever is greater), pensioners have been largely forgotten in the Chancellor's tax proposals.
National Insurance cuts only benefit working people, while freezing personal allowances will subject thousands more elderly people to income tax.
Previous analysis suggested that around 900,000 pensioners could face unexpected tax bills as a result of the disparity between pension and allowance levels.
In April, the state pension increased by 8.5%, which equates to an annual amount of £11,502. Consequently, if the less wealthy spouse of a couple claiming the marriage allowance receives the full pension, they could face a small tax liability in the tax year in question if that income exceeds the personal allowance.
Despite these concerns, the government maintains its position that it is treating pensioners fairly, highlighting increases to the state pension as part of the triple lock mechanism.