The taxman could owe couples with more than five years of marriage under their belt as much as £1,150. That’s because many people don’t know they can transfer up to 10% of their £12,500 personal allowance to a tax-paying spouse, reducing tax by £250. There are of course some catches. One spouse has to earn between £12,500 and £50,000 while the other has to earn less than £12,500, according to NFU Mutual.
While the Marriage Allowance was introduced in April 2015, it was not immediately well known with only 750,000 couples in 2015-2016 recouping £345 million. But by 2018-2019, news had got around and 1.78 million couples filed for the Marriage Allowance, saving £485 million. The good news for those new to the Marriage Allowance is that they can backdate their rebates up to a total of £1,150.
While a £250 tax break might sound good, it’s not enough to tempt the younger generation into marriage. The number of married couples in England and Wales fell from 426,000 in 1972 to 243,000 in 2016. In comparison, co-habitation increased by 25.8% between 2009 and 2019, up from 2.7 million couples to 3.4 million.
Til death do us part
This isn’t the only tax benefit that marriage brings. If you are married or have a civil partner, he or she can inherit your entire estate without facing any IHT (inheritance tax) bills. So if your half of the house is worth £200,000 and you have another £200,000 in assets of any other kind, the whole lot can go to your spouse or civil partner without a charge.
He or she also inherits any part of your IHT allowance not used on your death. So if you left them everything, they can now leave up to £650,000 without any tax being payable. But if, for example, you left £150,000 to other family members, he or she can only leave up to £500,000 before there is any IHT to pay.
The allowance from the first partner to die is transferred to the second partner only after the second partner’s death. There are further details on the Gov site.