Married couples could be missing out on a marriage tax allowance due to a loophole in the rules. GOV.UK explains that the marriage allowance allows you to transfer £1,260 of your Personal Allowance to your spouse or civil partner, reducing their tax by up to £252 in the tax year from April 6 to April 5 the following year. This is beneficial for couples where the lower earner has an income below the Personal Allowance, typically £12,570.
You can backdate your claim to include any tax year since April 5 2020 that you were eligible for the Marriage Allowance. However, there's an issue. The Sun highlights that according to the rules, the tax-paying partner must be a basic rate payer, earning between £12,571 and £50,270. But a loophole exists which states that you may still qualify if your earnings surpass £50,270, but only if you pay into a pension or make a gift aid contribution.
RSM, the tax experts, informed The Sun that they've seen several clients denied the marriage tax allowance by HMRC due to this very problem. They believe that potentially thousands could be deterred from applying for the benefit due to "unclear" guidance on the gov.uk website.
According to gov.uk, your partner must be a basic rate taxpayer, typically earning between £12,571 and £50,270 before they can receive the Marriage Allowance. In Scotland, your partner should pay the starter, basic or intermediate rate, which usually means their income is between £12,571 and £43,662.
Emma Newsome, a tax associate at RSM, said: "The root of the issue lies with HMRC's unclear guidance. A person can remain a basic rate taxpayer when they make a personal pension contribution or gift aid donation in the relevant tax year. This means it is possible for an individual to have income exceeding the £50,270 basic rate threshold while remaining a basic rate taxpayer."
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The Sun has reported that RSM has seen many clients who initially had their marriage tax allowance claims rejected due to ambiguous guidance. However, these claims were granted the benefit upon re-submission.
HMRC estimates that about 4.2 million couples are eligible for the tax break, but only half, 2.1 million, have claimed. This means around 2.1 million others are not benefiting from it. Because of this, if just 0.5 per cent of claims are incorrectly rejected or go unsubmitted due to misunderstandings of the rules, then up to 21,000 claims could be impacted.
However, HMRC has refuted these claims. A spokesperson for HMRC stated: "There are no problems with processing applications for Marriage Allowance. Eligibility is based on the rate of tax you pay. For the majority of people, this will be based on your income."
How can you apply for Marriage Allowance?
You can submit an application for Marriage Allowance online and it's completely free to do so here. If both partners have no other income apart from their wages, the one who earns less should be the one to make the claim.
The official gov.uk website advises: "If either of you gets other income, such as dividends or savings, you may need to work out who should claim. You can call the Income Tax helpline if you're unsure.
"Changes to your Personal Allowances will be backdated to the start of the tax year (April 6) if your application is successful."
A warning from Martin Lewis' Money Saving Expert
Martin Lewis' Money Saving Expert (MSE) has issued a warning that applying is free and to stay alert for scams. They caution: "Beware against googling 'marriage tax allowance'. Some shyster firms will charge you for applying (they try to look official), but it's FREE to apply. Follow our guide and the correct links below to do it safely and at no cost."
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