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Tax rates and allowances

Marriage allowance explained

By Joe Elvin

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Marriage allowance explained

Find out about marriage allowance and the other tax breaks available for married couples and civil partners.  

Marrying the person of your dreams doesn't just mean a bright and beautiful future together. It also brings some significant financial perks to. 

The Marriage Allowance is one of these, helping lower earners pass over any unused tax-free allowances to their spouse to save money.

This guide explains how the Marriage Allowance works. 

  • Get a head start on your 2016-17 tax return with the Which? tax calculator. Tot up your tax bill, get tips on where to save and submit your return direct to HMRC with Which?.    

What is the Marriage Allowance?

If you're set to earn less than your personal tax allowance in 2017-18, which is £11,500, you can transfer unused allowance to your partner so they have less income tax to pay, provided they are a basic-rate taxpayer. 

In 2016-17, this means they must have an income between £11,500 and £45,000.

Those earning less than £10,500 (£11,500-£1,150) can transfer £1,150 allowance to their partner, saving them £230. 

Those earning above £10,500, but below £11,500 can still transfer £1,150 of allowance, but will become liable to pay tax on any income in excess of £10,500. Their partner still makes a tax saving of £230 but the extra tax they pay reduces the overall level of saving made by the couple.      

This allowance will transfer to the spouse automatically every year unless you contact HMRC to cancel it or your marriage comes to an end (through divorce or death). 

The tax break is only available to married couples and civil partners who were both born after 5 April 1935.

If you're eligible for this tax break, you can register your interest online

If you were eligible for marriage allowance in 2015-16, when it was first introduced, you can backdate your claim for up to four years. This means that you could collect 2015-16's allowance of £212 and 2016-17's allowance of £220.

Other tax breaks for married couples and civil partners

Married couple's allowance

Despite its similar name, this is a different tax break. If one or both halves of the couple were born before 5 April 1935, you may be entitled to this instead of marriage allowance.

Married couple's allowance is also means-tested based on your and your spouse's salaries. 

Find out more: married couple's allowance - find out if you qualify 

Inheritance tax

When one of you dies, the surviving spouse won't have to pay inheritance tax (IHT) on their partner's assets.

They'll also inherit their spouse's unused inheritance tax allowance, making their IHT allowance potentially twice as big when they pass on assets to the next generation.  

Find out more: inheritance tax explained - all you need to know 

Tax on savings and investments

If one of you pays tax at a higher rate, a simple way to save tax is to transfer some of your savings and investments to the person paying the lower rate.

There are no laws against spending or investing income earned from a spouse's investment.

The transfer has to be a genuine gift though. You can't demand the money back if you get divorced or change your mind.

If you have investments in joint names, you'll each automatically pay tax on half the income even if you own them in unequal shares.

Find out more: tax on savings and investments - how much will you have to pay 

Capital gains tax

Married couples each have their own capital gains tax (CGT) allowance, but transfers between spouses are exempt from CGT.  

This means it's possible to transfer assets between one another to make the most of both spouses' annual CGT allowance. Transferring an asset into your joint names will have the same effect. 

Once again, the transfer must be a genuine gift.

Find out more: capital gains tax explained - the ins and outs of this tax

Bereavement allowance

This is a payment from the government given to widows for up to 52 weeks. To qualify, you have to be between 45 years old and state pension age when your partner dies.

Your entitlement depends on your age and your deceased partner's National Insurance contributions.  

A surviving spouse will also get automatic right of inheritance in the case of their husband or wife dying intestate, whereas an unmarried partner would not.  

Find out more: bereavement allowance - see if you qualify

  • Last updated: April 2017
  • Updated by: Gareth Shaw
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