We previously reported that HMRC has published a tool allowing you to check eligibility for the marriage allowance. However, we've found the tool to be extremely limited. What are the problems?
HMRC’s new tool for checking by how much you could benefit if you claim the marriage allowance carries the heading “As a couple, find out how much tax you would save if you applied for Marriage Allowance this year.” The tool is easy to use, and just requires you to enter your respective incomes and where you live. Unfortunately, the tool will only work if your incomes are relatively simple, e.g. all earnings. If you have other income, particularly savings or dividend income, the tool may tell you there is no benefit to claiming when, in fact, there is.
The guidance accompanying the tool is particularly misleading. It says under the title “Who can apply” that to be eligible to claim the person giving up part of their allowance does not pay income tax or their income is below the personal allowance. On the face of it, this makes sense. After all, if you both pay tax at 20%, making an election would simply transfer some tax from one partner to the other. However, the legislation doesn’t require this at all, and there are circumstances where making a claim is still beneficial.
Example. James and Jon are civil partners. James is employed and earns £40,000 for 2023/24. Jon is a serial investor and receives dividends of £20,000. James will pay tax at 20% on £27,430 of his salary after deducting the personal allowance. Jon will pay tax at 8.75% on £6,430 of his dividends after accounting for the personal allowance and dividend allowance. The total tax bill for the couple will be £6,049. If Jon makes an election for the marriage allowance, James will pay 20% on £26,170 (after the extra £1,260 from Jon’s allowance). Jon will pay tax at 8.75% on £7,690. The overall tax bill is now £5,907 - a saving of almost £150.
In short, if you have more than one type of income, or if you have savings and investment income, the tool isn’t going to be much use to you. You should speak to an advisor, or contact HMRC’s helpline on 0300 200 3300 to make the claim instead.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.