HMRC has confirmed that the personal tax-free allowance can be increased to £13,830 through the Marriage Allowance scheme, following Andy Burnham's decision not to raise the standard threshold. This means eligible couples can benefit from a higher tax-free allowance, allowing them to earn more before paying income tax.
Understanding the Marriage Allowance scheme
In the UK, every individual receives a standard personal allowance of £12,570, which is the amount you can earn before you start paying income tax. However, under the Marriage Allowance scheme, if you earn less than the standard personal allowance, your partner can transfer 10% of their personal allowance to you. This transfer entitles you to a higher tax-free personal allowance, effectively increasing your earnings threshold before tax applies.
When you receive this transfer, you are issued with the tax code 1383M. This code reflects your increased personal allowance, which consists of the standard £12,570 plus 10% of your partner's allowance, amounting to £1,260. As a result, your total personal allowance becomes £13,830.
Andy Burnham's decision and its impact
Labour Party leader Andy Burnham has confirmed that there is no commitment to change the income tax threshold at this point, but he indicated that the matter will be looked at in the next budget. Speaking last month, Burnham said that the ongoing freeze on income tax thresholds was the topic he "heard most on the doorsteps" while campaigning in the Makerfield by-election. He told reporters that "all of this will be looked at" in the next budget but acknowledged there would be "significant consequences" to lifting the threshold, meaning a substantial loss of revenue for the Treasury.
The standard personal allowance has been frozen at £12,570 since 2021. According to analysis by investment platform AJ Bell, if the threshold had risen in line with inflation, it would be about £16,072 next year and £17,380 by 2029-30. Burnham noted that increasing the personal allowance to £16,000 would cost around £35 billion, and even a £100 increase would cost roughly £1 billion a year.
How to apply for Marriage Allowance
To take advantage of the Marriage Allowance scheme, couples must meet certain eligibility criteria. You must be married or in a civil partnership, and one partner must earn less than the personal allowance (currently £12,570). The higher-earning partner must also be a basic rate taxpayer, earning between £12,571 and £50,270. The transfer can be backdated for up to four years, potentially resulting in a tax refund.
Applying is straightforward and can be done online through the GOV.UK website. Once approved, the tax code change is usually applied within a few weeks, and the higher-earning partner will see their tax code adjusted to reflect the transfer. This means that the lower-earning partner's allowance increases, while the higher-earning partner's allowance decreases slightly, but the overall household tax bill is reduced.
What this means for households
For many families, the Marriage Allowance can provide a welcome boost to their finances. By increasing the personal allowance to £13,830, eligible couples can potentially save up to £252 in tax each year. This is particularly beneficial for households where one partner earns below the personal allowance, such as stay-at-home parents or part-time workers.
However, it is important to note that the Marriage Allowance is only available to married couples and civil partners, and it cannot be claimed by unmarried couples or those in cohabiting relationships. Additionally, the scheme is not automatic – you must actively apply to benefit from it.
Future prospects for the personal allowance
While Burnham has not made any commitments to change the threshold, he has acknowledged the pressure on households. He stated: "So no commitment. No unfunded promise.. there is no commitment at this point to change, but we will look at that at the budget." This leaves the door open for potential changes in the future, but for now, the standard allowance remains frozen at £12,570.
In the meantime, couples who are eligible for Marriage Allowance should consider applying to maximise their tax-free income. With the tax code 1383M, you can earn up to £13,830 before paying income tax, providing a significant financial advantage in these challenging times.
