Lower earning married couples and couples in civil partnerships will soon have the potential to save up to £212 with the transfer of personal allowance.
These changes to personal allowance were announced by the government in 2013 and the new transferable allowance was published in the 2014 budget.
Every year you are able to earn a certain amount before you pay tax. Currently this is set at £10,000, although it will be raised to £10,600 in April of this year.
Those who earn less than £10,000 a year do not pay any tax on their earnings and from April anyone earning £10,600 or less will also be exempt. The new scheme is aimed at couples where one spouse is a non-tax payer.
How Does The New Marriage Tax Allowance Work?
With the new marriage allowance, from April 2015, couples can apply to transfer up to £1,060 of the non-taxpayer’s unused annual income tax allowance to their spouse or partner, as long as that person is a basic rate tax payer i.e. earning less than £42,385 a year and paying 20% tax. Couples who meet the criteria can save up to £212 a year in the first year.
The Government says it has announced the changes as a way to recognise the value of marriage and commitment in our tax system but it is actually only lower earning couples who stand to benefit from the changes. If one member of a couple earns over the basic tax rate their partner cannot transfer their personal allowance to them.
The new allowance will be available from April 6 and will potentially save money for over 4 million married couples and roughly 15,000 civil partners. Not every couple will save the full £212 with the transferable tax allowance. For example, if one person earns £10,000, they will only be allowed to transfer £600 of their allowance to their spouse.
The £1,060 limit will increase automatically in line with the personal allowance and it is important to note that the new marriage tax allowance is also available where a higher earner is self-employed.
Online registration for the new marriage personal tax allowance opened on the 20th February 2015 so couples can already register their interest to receive the allowance by heading to gov.uk/marriageallowance. In April HMRC will then contact those who have registered and invite them to apply.
Once you have applied, from April, PAYE earners will receive the tax benefit every month in their pay packet. The person who is receiving the allowance from their partner will have their tax code altered to reflect their larger personal allowance. This will be of great benefit to many couples who are applicable since if you are employed, you will have less of your earnings taken off you each month before you are paid.
If you are self-employed then you will receive the benefit through your tax return by way of a tax credit.
Examples
If you are married or in a civil partnership and are a basic rate tax payer, earning between £10,000 and £42,385 a year but your spouse earns less than £10,000 they can transfer their unused non-taxable personal allowance to you so that overall as a couple you pay less tax. If your partner earns £7,500 a year then they will have allowance that they are not using. Under the new system they can transfer a total amount £1,060 to you. You therefore take home additional tax free pay, which could equal a saving of up to £212 less tax over the year!
Exclusions
Only couples who meet the criteria will benefit from the new tax allowance. Couples who both earn over the annual allowance will not gain from the changes nor will couples where the higher earner earns over £42,385 a year.
Both members of the couple have to have been born on or after 6 April 1935 to meet the necessary criteria.
Cohabiting couples who are not married or in a civil partnership will not be able to apply for the marriage personal tax allowance no matter how long they have been together.
For more information on the new marriage tax allowance system contact Salisburys Accountants for expert financial advice.
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