With inflation showing no signs of coming to an end and National Insurance rates surging, it’s no surprise that Brits are in need of extra cash in 2022. Could you be one of the 2.4 million couples in the UK entitled to a £1,260 tax break?
The tax break comes under Marriage Allowance, which has recently been updated by HMRC. Here’s everything you need to know about the allowance and how it could help you (or your partner) in the new year.
Please note that tax treatment depends on the individual circumstances of each individual and may be subject to future change. The content of this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions
What is Marriage Allowance?
Marriage Allowance is a government scheme that has been designed to give couples a much-needed tax break. As a result, over two million couples in the UK may be able to reduce their tax bills and save some extra cash!
The Marriage Allowance scheme lets you transfer £1,260 of your personal allowance to your partner. Your personal allowance is the amount of money that you are able to earn tax-free each year. If you are able to make the transfer, your partner’s tax bills could be reduced by £252 in the next tax year.
Transferring some of your personal allowance to your partner could result in higher tax payments for you. However, by doing so, you could still pay significantly less as a couple.
How does Marriage Allowance work?
When claiming Marriage Allowance, you do not physically transfer money from your income to your partner. Instead, your partner will receive a £1,260 ‘tax credit’ that will reduce their taxable income. However, the amount that you can receive tax-free will also be reduced.
You can use the gov.uk Marriage Allowance calculator to work out how much you could save as a couple. Marriage Allowance allows you to transfer exactly £1,260 of your allowance each year, no more and no less.
Once you have applied for Marriage Allowance, there is no need to reapply! £1,260 of your personal allowance will be automatically transferred each year until cancellation.
Who is eligible for Marriage Allowance?
Marriage Allowance is designed to provide tax relief for couples in which one person does not earn any taxable income. This means that to transfer tax credit to your higher-earning partner, you must not earn more than £12,570.
As well as this, your higher-earning partner must be in the 20% tax bracket. Those who earn enough to be taxed at a higher rate than this are not eligible for the scheme. This means that your partner must earn no more than £50,270 each year. If your partner earns slightly above this threshold, they could increase their pension contributions to become eligible for the scheme.
Anyone who is married or in a civil partnership can apply for Marriage Allowance. However, you cannot claim Marriage Allowance if you are living together but not married or in a civil partnership. It is also worth noting that you cannot claim Marriage Allowance alongside Married Couple’s Allowance.
If you meet the eligibility criteria, you can apply for Marriage Allowance online.
Should you apply for Marriage Allowance?
Marriage Allowance could save your partner up to £252 in the tax year from April 6 2022 to April 5 2023. As a result, you may end up paying less tax as a couple, which could make it easier to contribute to your savings.
The extra cash could be put towards retirement, saving for a home or even a summer holiday. Applying for Marriage Allowance could be a great way to improve your finances as a married couple. Marriage Allowance can be easily cancelled, if needed, by phoning HMRC.
The post What is Marriage Allowance and how could it help you in 2022? appeared first on The Motley Fool UK.
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