Why, when and how to claim marriage allowance

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Matt Bailey, founder of Gbooks, looks at what the marriage allowance is, when it can be claimed and the complications of which accountants need to be aware.

As part of its latest digital plans, HMRC recently unveiled its first live data feed (or API), allowing software providers to check a taxpayer’s marriage allowance status. This move has put the marriage allowance back on the agenda, or at least reminded practitioners that the tax break exists and is available as they complete 2015/16 tax returns.

Marriage allowance – the basics

The marriage allowance allows a low-earning taxpayer to transfer up to 10% of his or her personal allowance (PA) to their spouse or civil partner. To be eligible the transferor must have income below the PA threshold, and the recipient must not be liable to tax at any rate other than the basic rate, the dividend ordinary rate or the starting savings rate. The happy couple must either be married or in a civil partnership for the whole or part of the tax year concerned, and at the time the election is made.

How to claim

Taxpayers can either claim by contacting HMRC direct or via their self-assessment tax return. This is relevant for accountants, as your clients may already be receiving the allowance via an amended PAYE tax code. If the couple made a claim they will have received new tax codes ending in either M (for the recipient) or N (for the transferor). So it is worth looking out for these letters when examining P60s or P45s.

Claims to transfer part of a taxpayer’s PA can also be made on the tax return by filling in the “Marriage Allowance” section on page 5. No action is required if a taxpayer is receiving the transfer, and the claim will not be included in their tax return or tax calculation. Instead HMRC will make a separate adjustment after receiving the tax return, and if necessary will contact the taxpayer to issue a refund.

Ceasing to claim

A taxpayer claiming marriage allowance may cease to be eligible due to changes in income levels, divorce or death. When and how the allowance is withdrawn depends on the reason and also how the allowance is being claimed.

Taxpayers get a slightly better deal if they receive the allowance via the PAYE system. Once claimed, HMRC will automatically roll the claim into subsequent years as long as the couple continue to obtain a tax advantage. If a partner ceases to be eligible due to a rise in income, the relief is withdrawn as from the start of the following tax year.

If the couple divorce they have the option of continuing the claim until the end of the year, although the transferor can opt for the claim to be cancelled from the start of the tax year in which the decree absolute (or equivalent) was made.

There doesn’t seem to be the same flexibility or time lags if the allowance is claimed via the tax return. Each claim is made on a single-year basis, and the taxpayers will need to meet the basic criteria for that year. So they will need to meet the income conditions, and still be married or in a civil partnership when the claim is made (i.e. when the tax return is submitted).

If one member of the couple dies there are further twists. If the recipient dies, his or her estate will keep the higher PA for that tax year but the transferor’s PA will be reset to the normal level. If the transferor dies the claim will remain in place as normal for that year, with both PAs staying at their enhanced or reduced levels. This treatment (or at least the treatment where the recipient dies) is set out in the legislation, so should apply regardless of whether the claim is given via the PAYE system or the tax return.

Summary

The marriage allowance may not be the biggest tax break in the world, but it is free money for some taxpayers and should not be wasted. There are complications in terms of the eligibility criteria, and in how claims are made, processed and withdrawn by HMRC, so accountants will need to be aware of the bells and whistles involved.

About Matt Bailey

matt_bailey

Founder of Azura Cloud Systems (Gbooks), the leading cloud-based tax and accounts system.

Replies

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By mbee1
15th Nov 2016 08:58

Perhaps the word "claim" is a misnomer. A person cannot claim the Married Allowance Transfer (MAT). The transferor must give the allowance to the other party. If you act for both parties and they are both within SA you can do it via the Tax Return without contacting HMRC beforehand but the allowance isn't transferred permanently - just for the one year of the Return although, if you're unsure of income levels this can be done annually.
I've had a number of arguments with ill trained HMRC staff who tell me to claim the allowance via the Return. No entry is made on the recipients Return save for a tick in the software we use to ensure the calculation is correct.
There is still an issue with SA302's in that often they are not arithmetically correct on page three. Page one and Online Services show the correct liability but page three sometimes does and sometimes doesn't. You also have to watch the liability is correct where it is affected by Gift Aid.

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to mbee1
11th Dec 2016 12:25

mbee you could also claim it this way through an HMRC link below: getting on the phone to contact centre staff for advice and guidance is a time waister they are clueless

https://www.tax.service.gov.uk/mdtp/registration?origin=ma&confidenceLev...

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By cfield
16th Nov 2016 10:59

I've claimed this a couple of times recently without hitches. However, if you use the online tool, you need to make sure you're using an up-to-date browser such as Google Chrome (especially if you've just migrated to Windows 10) otherwise the tool will kick you out halfway through.

It seems very unfair that people lose the allowance in full if they are over the higher rate threshold by even £1. You'd think they would have restricted it to basic rate, but they seem to have eschewed that option.

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to cfield
16th Nov 2016 19:54

cfield wrote:

It seems very unfair that people lose the allowance in full if they are over the higher rate threshold by even £1. You'd think they would have restricted it to basic rate, but they seem to have eschewed that option.

What they've done is very much inline with other recent Income Tax changes. For instance, that same £1 over that same threshold and the tax-payer using the PSA is immediately whacked for an extra £100 Income Tax - an incremental tax rate of just over 10,000% !

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16th Nov 2016 19:46

"To be eligible the transferor must have income below the PA threshold"

Surely not an "eligibility" criterion - just an indication that such tax-payers will benefit from MAT, Matt?

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25th Nov 2016 10:18

Is it still possible to claim this when the wife's income is over 90% of the PA rate? Transferring the 10% would give her a liability of £46 but there would still be an advantage in making the claim. I can't see anywhere whether this is still possible, anyone know for definite?
I've also had arguments with HMRC who insist that the transferor needs to go online and make the claim in addition to putting it on both their tax returns. All this effort for such a relatively tiny tax break.

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to monksview
25th Nov 2016 14:47

monksview wrote:

Is it still possible to claim this when the wife's income is over 90% of the PA rate? Transferring the 10% would give her a liability of £46 but there would still be an advantage in making the claim. I can't see anywhere whether this is still possible, anyone know for definite?
I've also had arguments with HMRC who insist that the transferor needs to go online and make the claim in addition to putting it on both their tax returns. All this effort for such a relatively tiny tax break.

Yes - the recipient gets the full 10% and the donor has an increased liability - but there is still an overall benefit.

Very suspect advice from HMRC. Only the donor makes an application. The recipient just waits.

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to monksview
11th Dec 2016 19:39

Deleted

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By jcm1971
09th Dec 2016 13:54

I have husband and wife clients where the wife surrendered her allowance via the 15/16 return. The calculation HMRC issued shows that the application was processed for her. However, the husband's calculation does not show him receiving the allowance. Just spoken to two people on the agent helpline, who have both told me that the reason that the allowance isn't showing on the calculation is because they haven't applied online. When I pointed out that the online application would obviate the need for an entry on the return and asked what the section was there for, the replay was "I don't know". The Revenue website now only refers to the online, perpetual, version. Have they changed something fundamentally in the last few days?

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to jcm1971
09th Dec 2016 15:25

jcm1971 wrote:

..the husband's calculation does not show him receiving the allowance

no "less Marriage Allowance transfer" on the SA302?

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By jcm1971
to emanresu
12th Dec 2016 12:16

No - nothing

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11th Dec 2016 12:21

matt does this benefit apply to couples of all ages now? rather than just those born before 1935 and 1948? where one partner pays tax and the other doesnt?

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11th Dec 2016 19:37

As I read it, the legislation states that providing that "the individual ... is UK resident for the tax year", with the condition that if "the individual's personal allowance was reduced as set out in section 55B(6), the individual would not for that year be liable to tax at a rate other than the basic rate, the dividend ordinary rate or the starting rate for savings." They may elect to reduce their Personal Allowance

This contradicts Matt's statement, and some HMRC documents, but it is there in the legislation from which I extracted the two quotations above:

http://www.legislation.gov.uk/ukpga/2007/3/section/56

and

http://www.legislation.gov.uk/ukpga/2014/26/section/11

and I cannot find any amendment in later Acts.

The implication is that a range of conforming clients with substantial pre-election tax liability can elect to reduce their Personal Allowance with nett benefit to the couple involved.

I'd welcome criticism of the above.

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12th Dec 2016 14:47

Thank you for the various comments above.

On the eligibility criteria, HMRC is saying the transferor must have income below the PA threshold (see, for example, https://www.gov.uk/marriage-allowance/how-it-works). I agree this doesn't match the broader eligibility criteria set out in the legislation, but HMRC may be taking a view this is a simpler way of achieving the same goal.

I can see there are some scenarios where the taxpayer will want to transfer some of his or her PA and meets the criteria in the legislation but not the more basic HMRC test. I imagine the legislation will win any argument, so HMRC may have to change its guidance at some point.

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