In the current tough economic environment, every penny counts. Many people have been faced with a reduction in their earnings or have sadly lost their jobs. In addition, there are those who are either partially or fully retired, whose income may have been reduced by some margin.
The Personal Allowance is a tax allowance that is available to most people who are resident in the UK. It reduces the amount of taxable income on which you pay income tax. The basic Personal Allowance is £12,500 in the current tax year.
If your income is below your Personal Allowance, for example £11,000, you lose the unused portion; in our example £1,500. You cannot drag forward any unused allowance to future tax years.
For married couples or civil partnerships, it is possible to transfer 10% or £1,250 of the allowance, known as the Marriage Allowance, to your husband, wife or civil partner. The transfer will reduce the higher earner’s income tax by up to £250 in the current tax year. To benefit as a couple, the lower earner must normally have an income below the Personal Allowance (£12,500) and the partner pays income tax at the Basic Rate. Basic Rate tax is paid between the income levels of £12,501 and £50,000 (2020-21 tax year).
It is possible to backdate your claim to include any tax year since 5th April 2016 where you were eligible for the Marriage Allowance. Your claim could generate £1,169 if you are successful in claiming all 5 tax years (see below).
- 2016-17 £11,000 x 10% = £1,100 x 20% = £202
- 2017-18 £11,500 x 10% = £1,150 x 20% = £230
- 2018-19 £11,850 x 10% = £1,185 x 20% = £237
- 2019-20 £12,500 x 10% = £1,250 x 20% = £250
- 2020-21 £12,500 x 10% = £1,250 x 20% = £250
You can apply for the Marriage Allowance online:
https://www.gov.uk/marriage-allowance/how-to-apply or call the Marriage Allowance enquiries line 0300 200 3300.
Please note you cannot get Marriage Allowance and Married Couple’s Allowance at the same time, Married Couple’s Allowance is a benefit available if one of a couple, either in a marriage or civil partnership, was born before 6 April 1935 and are living together.
At Wingate this type of planning forms a core part of our holistic approach and is often discussed through legislation updates during our annual review process. If you would like to chat through your current position and future plans, please contact a member of the award winning Chartered Financial Planning team at Wingate.