While the standard Personal Allowance remains frozen at £12,570 until 2028, the Marriage Allowance offers a valuable workaround. By transferring a portion of their unused allowance, couples can reduce their tax bills and potentially access a larger tax-free income than previously available.
The Marriage Allowance Explained
The Marriage Allowance is a scheme that allows one partner in a marriage or civil partnership to transfer up to £1,260 of their tax-free Personal Allowance to the other partner. This is particularly beneficial if one partner earns below the £12,570 threshold, and the other is a basic-rate taxpayer. The transfer increases the recipient’s tax-free income from £12,570 to £13,830, potentially reducing their tax bill by £252 annually.
To qualify for this transfer, the lower-earning partner must have an income under £12,570, such as when they are not working, on maternity leave, or taking a career break. The higher-earning partner must be within the basic tax rate range, earning between £12,570 and £50,270. According to HMRC, the Marriage Allowance allows for this transfer to be backdated up to four years, enabling couples to claim a rebate for previous tax years.
For example, a couple could claim the allowance for the 2021-22, 2022-23, 2023-24, and 2024-25 tax years. This backdating could result in a rebate of £252 per year, potentially adding up to £1,258. While this is a modest saving for some, for families with a tight budget, it could be a valuable boost to their finances.
Eligibility and How to Apply
To be eligible for the Marriage Allowance, the lower-earning partner must not exceed the £12,570 tax-free allowance threshold in any given year. This typically applies to individuals who do not work or earn a very low income. For example, a stay-at-home spouse or a partner on a sabbatical could benefit from the scheme.
Importantly, the Marriage Allowance can only be claimed by one partner, meaning both cannot benefit from the increased allowance. Couples are required to apply to HMRC to claim this benefit, and the backdating option allows them to recover any tax paid in previous years, up to four tax years.
It’s worth noting that a small change was made in 2024-25, allowing individuals with earnings between £11,130 and £12,570 to qualify for the scheme, although the savings are less significant for these earners. This adjustment slightly broadens the scope of the allowance, benefiting more couples in lower income brackets.
With the freeze on the Personal Allowance set to last until 2028, more people may find themselves paying higher taxes as their earnings rise due to inflation. The Marriage Allowance provides an opportunity for couples to counteract this by accessing a larger portion of their income tax-free. In addition, the ability to backdate the claim offers significant financial relief, particularly for those who have missed out on the allowance in previous years.
