express– Britons will want to reduce their tax bill legally by any possible means, and with the news of National Insurance rises in future, people are likely to be reassessing their finances. For certain individuals, lowering tax could be possible via a scheme known as Marriage Allowance which involves the transfer of some of one’s Personal Allowance. But many people are unaware of this perk, and how they could make it work in their favour. To find out more, Express.co.uk spoke exclusively to Laura Hughes, Head of Marketing at PayDashboard, who provided insight into the key way certain Britons could be able to reduce their tax bill.
She said: “The Marriage Allowance enables a couple to be more tax efficient with their combined incomes. We all get a tax-free annual allowance, which for most people is £12,500 each.
“If one partner earns less than this, then they can transfer some of their allowance to their partner who earns more. This means that the higher earner pays less tax. So, as a couple they bring home more money.”
People will be eligible for Marriage Allowance if they are married or in a civil partnership. However, in this sense, individuals should be aware that cohabiting couples will not be able to benefit from this tax allowance.
Similarly, in order to be able to apply, one partner must be earning £12,570 or less. This is applicable for the current tax year, unless a person is retrospectively taking action for previous years and their earnings.
The other partner must be earnings less than £50,270 in order to meet the criteria. This slightly differs in Scotland, meaning individuals must earn less than £43,430 to be eligible.
Finally, both people in the couple should be born after April 6, 1935. While this means older couples may not be able to benefit, there are still a whole host of individuals who are state pension age and older who will be able to receive the tax break.
As Ms Hughes notes, everyone is able to receive a tax-free allowance, known as a personal allowance, and this year it is worth £12,570. It means that a person can earn up to this amount and not pay any tax to the Government. However, the personal allowance reduces for those earning more than £100,000.
And, amid news of a National Insurance rise, Britons should be aware if they earn less than the Personal Allowance, they could end up paying less in NI as well. But anything above the threshold will be subject to the usual taxes.
But the Marriage Allowance allows someone earning below Personal Allowance to transfer £1,257 of this allowance to their partner. With a partner taxed on less of their salary, their take-home pay will increase, and this is the key benefit.
However, PayDashboard has issued a warning on Marriage Allowance. This is because many people who are eligible for the tax break are not, in fact, claiming. This means many could be missing out on the chance to simply reduce their tax bill.
As a result, then, Britons are being urged to take action to look into the matter in more detail, check their eligibility and see if they could make a claim.
Ms Hughes added: “BBC research in 2018 said that over a million couples were not claiming, despite being eligible. It’s one of the easiest tax breaks to claim and all sorted through payroll or your tax codes. And it can be backdated.
“It’s based on annual earnings as well – so couples with temporarily reduced earnings due to furlough in 2020 or 2021 which meant the looking at their annual pay they would be eligible, can also apply.
“They just need to advise HMRC when their earnings return to the usual levels and they are no longer eligible.”
Marriage Allowance can be worth £252 this year, however, it can also be backdated over four years, meaning individuals have the opportunity to reduce their tax bill by over £1,000.
To apply, the person on the lower income must ask to transfer their allowance to their partner. Higher earners will not be able to apply for this tax break.
Individuals can apply online via the Government’s official website. They are encouraged to do it in this way as the Government ensures 100 percent of the Marriage Allowance to which a person is entitled reaches their pocket.
Some individuals choose to undertake the action via specific Marriage Allowance firms, but experts such as Money Saving Expert Martin Lewis, have warned against this in the past, as these organisations can take their cut for their services.
When applying, there are certain pieces of information a person will need in order to progress their claim. These include:
Ms Hughes explained Britons can apply at any time during the year. If the application is successful, then couples will have their allowance backdated to the start of the current financial year.
However, she also concluded by urging certain individuals to be careful. This is the case for those who earn only just above or below the £12,570 threshold.
This is because there are certain scenarios where Marriage Allowance is not financially beneficial and individuals end up paying more tax by claiming it. PayDashboard states this is daily the case if the person on the lower income earns between £11,313 and £12,570, and the higher paid person earns just over £12,570.