Jennifer Adams looks at the married persons allowance and the mechanics of a transfer between spouses or civil partners.
The married persons allowance (MPA) is not an allowance; rather it is a tax reducer enabling the reallocation of 10% of the annual personal allowance from one person in the marriage (or civil partnership) to the other. The claim is for £1,250 as a lower amount cannot be transferred, and as such the maximum tax reduction benefit is (£1,250 x 10% =) £250.
How does it work?
To be eligible, both partners need to be aged 85 years or over (i.e. born after 6 April 1935), one must have an income of £12,500 (for 2020/21) or less with the partner’s income being between £12,501 and £50,000 (or £43,430 in Scotland). Neither party can be liable to tax at a rate other than the basic rate, the dividend ordinary rate or the starting rate for savings; as such, higher or additional rate taxpayers are excluded (i.e. be that the recipient or the transferor).
Calculations show that if the lower earner earns between £11,250 and £12,500 and the higher earner earns at least £13,750, the benefit will be tapered.
The couple needs to be married for the whole or part of the tax year and still be married at the date of claim. However, there is no requirement for them to be living together, meaning that it can still be transferred after separation. This also means that a claim could be made where one (or both) spouse has died during the tax year, thereby enabling an election on death where it was not previously possible in life because one of them was a higher rate taxpayer.
If one or other of the parties was born before 6 April 1935, a further restriction to the claim is that the married couples allowance (MCA) cannot also be claimed. In instances where both are available, the preference will be to claim the MCA because the minimum MCA provides a tax deduction of between £351 and £907.50 a year, whereas the maximum benefit from the MPA is £250.
Making the transfer
Elections must be made within four years after the end of the tax year and remain in force until withdrawn (i.e. by giving notice). However, an election made after the tax year applies only to the year of election in isolation. In order to claim back to 2016/17, couples have until 5 April 2021. Be aware that HMRC's computer does not always carry the claim forward year on year, so this needs to be checked.
HMRC's website states that a claim can be made by phone, but in practice HMRC only accepts claims via use of the Government Gateway or by completion of a form 18 or by letter. Just 2.2 million of the 4.4 million people eligible to claim have done so since its introduction in 2015, and the reasons why not can only be lack of public awareness either that the claim exists or belief that the making of the claim is via the website only.
For past years, the refund comes in the form of a refund cheque; however, for a current tax year claim and going forward, if both partners have income taxed under PAYE their tax codes will be amended. For the self-employed and others in self-assessment, the allowance will be dealt via the self-assessment tax return.
Practical tip
If the non-taxpayer does not have the full £1,250 left to transfer (i.e. their income is between £11,251 and £12,500) then a claim can still be made, although this will mean that tax will be payable by the non-tax payer as they will have gone over the personal allowance. However, the claim can still be worthwhile as the total tax liability for the couple will be reduced.
