How to transfer personal tax allowance to a spouse or civil partner

couple discussing transfer of personal tax allowance
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    Did you know that as a married couple or civil partnership, there are certain tax benefits you might be missing out on? Especially when it comes to Personal Allowance. If one of you is the higher earner, then you might be eligible to claim Marriage Allowance.

    Marriage Allowance is a specific tax benefit in the UK that allows spouses or civil partners to transfer 10% of their Personal Tax Allowance to their other half. This reduces the amount of Income Tax the couple would need to pay, resulting in more significant tax savings.

    In this blog, we are helping you and your partner understand how to make better tax savings using nothing more than your marital status.

    Keep reading to find out how you can benefit from making a Personal Allowance transfer, or get in touch with Archimedia today for expert support on increasing your personal wealth.

    Is a Personal Tax Allowance transferrable?

    In the UK, a portion of your Personal Tax Allowance can be transferred to your spouse or civil partner through Marriage Allowance, so long as you meet the eligibility criteria. In doing so, you can significantly reduce your tax obligations as a household and make smarter savings.

    By transferring 10% of your unused Personal Allowance to your spouse or civil partner, you can give them a 20% reduction on their tax bill on the amount transferred.

    What is a Marriage Allowance?

    Marriage Allowance (also known as Marriage Tax Allowance) reduces your taxable income by allowing you or your partner to transfer a portion of your unused Personal Allowance to the other person.

    Essentially, if you are the lower-earning partner and your income is less than the Personal Allowance (£12,570), then you have the option to transfer 10% of your unused allowance to your spouse or civil partner. The higher-earning partner will then get £1,257 added to their basic Personal Allowance.

    The partner that receives the additional allowance only has to pay tax on their income at the basic rate, resulting in a huge tax benefit. This usually means that the higher-earning partner has an income between £12,571 and £50,270 before the Marriage Allowance is transferred to them.

    You and your spouse can still benefit from the Marriage Allowance, even if one of you is unemployed, as the unemployed partner will not pay income tax and can, therefore, transfer 10% of their Personal Allowance.

    What is the difference between the Marriage Allowance and the Married Couple’s Allowance?

    While they are both smart tax benefits that should be utilised where possible, there are a few differences between Marriage Allowance and Married Couple’s Allowance, specifically relating to the eligibility criteria.

    Marriage Allowance

    Marriage Allowance (also known as Marriage Tax Allowance) is a tax relief designed to allow spouses and civil partners who are earning less to transfer a percentage of their Personal Allowance to the higher-earning partner. It is a more common form of tax relief, benefitting a broader range of couples.

    Essentially, one partner must earn below the Personal Allowance threshold (£12,570) and not be paying income tax, while the higher earner must be a basic rate taxpayer.

    Married Couple’s Allowance (MCA)

    Married Couple’s Allowance, on the other hand, is a less common tax relief aimed at older married couples and civil partners. It can have the potential to reduce their tax liability by up to £1,037 per year.

    To qualify for Married Couple’s Allowance, you must be in a marriage or civil partnership and living together. Since it is aimed at older couples, either one or both of you must be born before 6th April 1935.

    How does income tax work when your Personal Allowance has been adjusted?

    Transferring Personal Tax Allowance in a marriage or civil partnership will affect how each partner pays tax. As an employee, if your Personal Allowance has been reduced or increased due to a Personal Allowance transfer, then your tax code will change to reflect the amount of tax you pay every month.

    If you are the partner receiving the Marriage Allowance, your tax code will change to ‘M’ to indicate that you are receiving Marriage Allowance from your spouse.

    Whereas, if you are the partner who made the Personal Allowance transfer and are in employment, then your tax code will change to ‘N’.

    Why do couples choose to transfer their Personal Allowance?

    Ultimately, couples choose to transfer their Personal Allowance to make greater tax savings. With more income comes more flexibility. The additional savings can contribute to utilities and other living costs or even towards a holiday!

    Claiming Marriage Allowance and other tax reliefs is important, regardless of how much you can save. The savings soon add up and contribute to enhancing your life.

    Speak to Archimedia Accounts today

    At Archimedia Accounts, we specialise in all areas of tax and accounting, helping you make greater tax savings. We are a family-owned accounting firm, and we understand how important it is to secure your finances for your family’s future.

    Our goal is to help you become more tax-efficient to a point where our service practically pays for itself.

    Barbara and Chris, Archimedia Co-Founders, are dedicated accountants who also own a large and successful property portfolio. At Archimedia, we use our personal knowledge combined with professional expertise to find innovative ways to diversify your income.

    With regular annual tax planning meetings, we are here to help you grow your wealth and make more significant tax savings. Reach out to us today for a friendly call and a free consultation.

    Conclusion

    If you and your spouse are looking to make more strategic savings this tax year and secure your family’s financial future, then you may benefit from applying for a Marriage Allowance online. It is a quick and easy process which can be done when filling out your Self-Assessment tax return.

    There are various rules and regulations to consider when transferring Personal Allowance to your spouse or civil partner, but with our help, it can be done in a stress-free way.

    Picture of Chris Demetriou

    Chris Demetriou

    Chris is Head of Business Advisory​ at Archimedia Accounts and is a specialist in tax. For more advice book a FREE consultation:

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