A little known tax break could save you £250 a year and millions are missing out – how to claim
BRITS could reduce their tax bill by up to £252 through a key allowance.
But experts have said there are millions of people who could be missing out by not applying for it.
It comes after the government announced a double-whammy tax bombshell to fix Britain's social care crisis.
Boris Johnson revealed on Tuesday his highly-controversial plan to raise National Insurance by 1.25 per cent next year to limit the costs of elderly care.
Shareholders will also be taxed on dividends to help raise the £12billion a year extra earmarked for the NHS and social care sector.
However, a tax break called the marriage allowance could help couples save around £250 a year.
To qualify, one of the couple must be a basic rate taxpayer and the other a non-tax-payer, which usually means they earn below the personal allowance.
Your personal allowance is the amount of money you can earn without it being taxed every year, for 2021/2022 this amount is £12,570.
The marriage allowance lets a civil partner or spouse transfer 10% of their personal allowance to their higher earning partner.
Being able to transfer over your personal allowance means that you or your partner could get a tax break of £252 this year.
But couples can also backdate their claims for any of the previous four tax years, which means they could be due tax relief of up to £1,220.
Who is eligible for Marriage Tax Allowance?
In a nutshell, one of you in the relationship needs to not earn enough to pay tax whilst the other person needs to earn enough to be on the basic 20 per cent tax rate.
You can benefit from Marriage Allowance if all the following apply:
- you’re married or in a civil partnership
- you do not pay Income Tax or your income is below your Personal Allowance (usually £12,570)
- your partner pays Income Tax at the basic rate, which usually means their income is between £12,571 and £50,270 before they receive Marriage Allowance
You cannot claim Marriage Allowance if you’re living together but you’re not married or in a civil partnership.
How does it work?
The partner who doesn't pay tax can transfer up to £1,260 of their unused personal allowance during the current tax year to the other person in the relationship.
It is always the non-tax paying partner who can transfer their allowance, it won't work the other way round.
£1,260 is the limit on the amount you can transfer so even if you had £5,000 in unused tax allowance you can't send it to your partner.
For example, the partner who doesn't pay tax earns £5,000 a year.
This means they don't earn enough to pay tax and have plenty left over in their £12,571 personal allowance to transfer over to their partner.
The tax paying partner is on the basic tax rate as they earn £30,000.
Once the non-tax paying partner transfers over £1,260 of their personal allowance to the tax paying partner, the tax paying partner will have a total personal tax allowance of £13,830. (£12,571 from the tax paying partners personal allowance plus the transferred over personal allowance from the non-tax paying partner.)
The tax paying partner now has an extra £1,260 in their personal allowance which they aren't paying tax on.
So the tax paying partner is taxed less on their salary and because of the extra personal tax allowance doesn't have to pay £252 in tax.
So how do my partner and I get tax relief of £1,220
THE great thing about marriage tax allowance is that it can be backdated.
The marriage tax allowance started on April 6 2015.
The rate for how much you money you get has gone up every tax year since it started.
2015/16 was £212.
2016/17 was £220.
2017/18 was £230.
2018/19 is £238.
2019/20 is £250.
2020/21 – £250
If you apply now you don't have to do anything differently, the money is automatically backdated from the previous four tax years and sent to you as a cheque.
If you don't have £1,260 left in your personal allowance you can still apply but be careful as any amount you transfer over that goes over your personal allowance will be taxed.
But in addition to this year's allowance, you can also get it for the previous four tax years (currently 2016/17, 2017/18, 2018/19 and 2019/20).
The tax break was worth £220, £230, £238 and £250 during those years respectively, meaning you can get up to £1,188 in total.
How do I apply?
You can only apply if you are the non-taxpayer – or lower earner – in the relationship.
You need to fill out a form on the Gov.uk website and you’ll need your national insurance numbers and a form of ID for the non-taxpayer.
Whatever way you apply, any backdated money owed to you will be calculated automatically and sent to you as a cheque.
If you need any assistance applying, you can call the HMRC helpline on 03000 200 3300.
It comes as low-income households are set to suffer the most from impending tax hikes to fund social care, experts warn.
In other news, from 2023 elderly care costs will be capped at £86,000 over a lifetime – and then the Government will cover the rest of the bill.
We have rounded up your rights if you are made redundant once furlough ends.
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