I’m sure most of us, at this time of year, take the trouble to buy our other half a gift to celebrate Valentine’s day whether this be flowers, chocolate, wine or a night out (or more) as well as the obligatory card. No doubt a trip to the shops in order to buy the gift without getting rumbled adds to the suspense.
But did you know that HMRC also has gifts for couples that usually take less time to sort out than a trip to the shops? If not read on...
There are currently two allowances that you may be able to access from HMRC if you are married or in a civil partnership, the one we’re discussing is probably the more accessible for most of us, this being the “Marriage Allowance”.
To benefit as a couple, the lower earner must normally have an income below the Personal Allowance - this is usually £12,570 - with the higher earner being a basic rate tax-payer, so earning less than £50,270. The lower earner can transfer 10% (£1,260) of their personal allowance to their partner who will then be eligible to use this as part of their personal allowance before they pay tax. This equates to a saving of £252pa which definitely goes a long way to financing that Valentine’s Day gift!
Here's a quick example of how it works
The lower earner’s income is £10,000 with a Personal Allowance of £12,570, so no tax is payable whilst their partner’s income is £20,000 (basic rate tax-payer) also with a Personal Allowance is £12,570, so they pay tax on £7,430 of their earnings (their ‘taxable income’) at 20%.
Were this couple to utilise the Marriage Allowance then the lower earner would transfer £1,260 of their Personal Allowance to their partner, meaning that their Personal Allowance would become £11,310 and their higher-earning partner gets a ‘tax credit’ on £1,260 of their taxable income.
This means that the higher-earning partner will only pay tax on £6,170. As a couple you benefit, as you are only paying Income Tax on £6,360 rather than £7,430 saving you, as a couple, £252.
So there you are, a little saving on your tax with the compliments of HMRC and as an added bonus you can even backdate it to include any tax year since 5th April 2017.
Should you have any queries on this or any other aspect of your financial planning please don’t hesitate to get in touch. Mosaac offer a free no-obligation consultation to help you and your family get on track with your finances
Happy Valentine’s Day from Mosaac and the taxman.!