The hidden income tax benefit of marriage

Wedding season

If you tied the knot over the summer you probably have a list of related administrative tasks to do. Near the top of that list should be working out how to organise your finances to reduce your overall tax bill. You should also check whether you would benefit from claiming the marriage allowance. As a relatively small tax break only available to some married couples or civil partners, you’d expect it to be a straightforward task. Unfortunately, HMRC guidance makes it more difficult than it needs to be.

Don’t bother using HMRC’s marriage allowance calculator. It doesn’t always give the correct answer.

Marriage allowance

The marriage allowance allows you to transfer 10% of your personal allowance to your spouse. This currently equates to £1,260, saving up to £252 (£1,260 x 20%) per year.

You’re still entitled to the full amount for the year in which you get married. To qualify, neither of you can be higher or additional rate taxpayers.

Example. Andy is a higher rate taxpayer with an annual salary of £100,000. His wife, Agnes, has no income. They cannot claim the marriage allowance and Agnes’ personal allowance is wasted.

Should you claim?

If your income is between £13,830 and £50,270 and your spouse’s income is below their personal allowance (£12,570), you will benefit from the marriage allowance. Keep in mind that it’s an all or nothing claim which means your spouse could end up paying tax. However, it could still save tax overall.

Example. Delilah earns £45,000 and her husband Tony is self-employed, earning £11,700 per year. They claim the marriage allowance and Tony’s personal allowance is reduced to £11,310. He now has to pay 20% tax on the difference, costing £78. Delilah’s tax liability reduces by £252, so as a couple they save £174 overall.

The problem with dividends

What HMRC guidance won’t tell you is that you can still benefit from the marriage allowance if the lower earner’s income exceeds the personal allowance, e.g. if they have dividend income.

Example. Delilah earns £45,000 and her husband Tony has dividend income of £15,000. They can claim the marriage allowance. Tony will have to pay an extra £135 (10.75% x £1,260). Delilah’s tax liability is reduced by £252, so as a couple they save £117 overall.

Wait until after the end of the tax year to make a claim so you can check that it will be tax efficient. Check each year that your circumstances change.

How to claim

You can apply online (see Further information ) or on your tax return if you’re in self-assessment. If you both complete tax returns, the spouse transferring their allowance needs to file at least three days before the other.