Q: I recently tied the knot with my long term partner and we’re now in a civil partnership. A friend mentioned that there’s a possible tax relief my partner and I could take advantage of. She is the higher earner, earning £40,000 per year. I earn £11,500. What’s the position? How much relief, if any, can we benefit from?
A: Firstly, congratulations on your good news!
You are correct that you and your partner now qualify for a tax relief called Marriage Allowance. Civil partnerships are also included within this – despite the somewhat misleading title in this case.
The fact you earn £11,500 puts you below the income tax threshold of £12,570 – otherwise known as the Personal Allowance. This is the amount you’re allowed to earn in a tax year before paying income tax.
Your partner’s income being £40,000, with the same Personal Allowance of £12,570, means she has taxable income of £27,430. So that’s the total amount you pay tax on as a couple.
When you claim Marriage Allowance you can transfer £1,260 of your unused Personal Allowance to her. Your Personal Allowance becomes £11,310 and your partner gets what’s known as a ‘tax credit’ on £1,260.
This means you will now pay tax on £190, but she will only pay tax on £26,170 rather than £27,430. So that’s a combined £26,360 of taxable income between you. The result is £1,070 less of your combined earnings is taxed.
Without Marriage Allowance, you pay nothing and she pays tax on £27,430 at 20% which amounts to £5,486 of tax owed. With Marriage Allowance, you pay a small sum of tax – just £38 but she pays 20% on £26,170 which means the tax she pays has gone down to £5,234. So, when you put the combined figures together (£38 and £5,234), that’s £5,272 owed, rather than £5,486. So, ultimately you save £214 in total as a couple.
