QUESTION: My wife and I are retired and we have relatively modest amounts of annual income. I have read that the marriage allowance may allow my wife to claim some tax back by sharing our personal allowances between us. Can you explain this?
ANSWER: The marriage allowance was introduced in April 2015. It allows an individual to transfer 10 per cent of their personal allowance (£12,500 in 2019/20 so the amount transferred is £1,250) to their spouse or civil partner. Twenty per cent of this allowance is then given as a reduction in the recipient’s tax bill. In 2019/20, this can result in anything up to a £250 tax saving for the couple. There are various conditions to be met.
It's important to note that you can still claim to transfer the personal allowance for 2015/16 and subsequent tax years, even if you did not do it at the time. Essentially, you can get the benefit of the marriage allowance on a backdated basis. However, it is important to remember you will only get the full benefit if the person giving up the allowance is not using it and the person receiving the tax reduction can use it.
It is worth reminding couples that they have until April 5 2020 to claim back to 2015/16 or they will miss out on that year. This is in line with the general four-year time limit that exists to claim a refund. If a claim is not made within the time limit you will lose out on any refund that may be due and the tax year becomes 'closed' to claims.
You will only get the full benefit if the person giving up the allowance is not using it and the person receiving the tax reduction can use it.
This can result in the couples being able to make the following tax savings, totalling up to £1,150:
• 2018/19 tax year: the personal allowance was £11,850, meaning £1,190 (rounded up) can be transferred (maximum £238 tax saving).
• 2017/18 tax year: the personal allowance was £11,500, meaning £1,150 can be transferred (maximum £230 tax saving).
• 2016/17 tax year: the personal allowance was £11,000, meaning £1,100 can be transferred (maximum £220 tax saving).
• 2015/16 tax year: the personal allowance was £10,600, meaning £1,060 can be transferred (maximum £212 tax saving).
You need to meet the criteria in respect of each year you apply for the allowance.
In order to claim a refund, the person giving up part of their personal allowance needs to make the claim and as part of doing this, can make claims for earlier years also. There is a relatively straightforward online facility to do this on the Gov.uk website.
To use it, you need to have your national insurance number and prove your identity, such as by giving details from your P60, payslips, passport or child benefit. You also need the national insurance number of your spouse or civil partner. If you cannot claim online, you can telephone HMRC on 0300 200 3300 or write to them to make the claim.
For prior years, you will receive a refund cheque from HMRC. For the current tax year and going forward, your own and your spouse or civil partner’s tax codes will be amended. For the self-employed, the marriage allowance will be dealt with as part of the self assessment tax return.
If your circumstances change, such as you divorce or you or your spouse become a higher rate taxpayer, you should let HMRC know as you will no longer be eligible for the marriage allowance.
:: Malachy McLernon (m.mclernon@pkffpm.com) is a director of PKF-FPM (www.pkffpm. com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
