You recently claimed the marriage allowance. After several weeks HMRC responded by refusing your claim and giving bogus reasons. What steps can you take to get the allowance you’re entitled to?
Marriage allowance
The marriage allowance was introduced in 2015 to help married couples and civil partners make more tax-efficient use of their personal tax-free allowances. It does this by allowing one spouse/partner to transfer part of their allowance to the other. The trouble is, HMRC’s procedures and handling of claims has been plagued with problems from the beginning.
HMRC guidance v the law
HMRC’s public guidance for claiming the marriage allowance is unclear. It says that to be eligible the spouse/partner making the transfer must have income of less than the personal allowance (£12,500 for 2020/21), and the other spouse/partner’s income must “usually” be less than £50,000, i.e. the basic rate tax threshold. In fact the legislation says nothing about either the transferee’s or transferor’s level of income or the basic rate threshold.
Legislation
The legislation actually says that the spouse/partner receiving the marriage allowance must not be liable to tax at a rate higher than the basic rate. The £12,500 and £50,000 income limits referred to by HMRC are not mentioned in the rules. While we understand that HMRC’s guidance is intended to be helpful and applicable for many couples, it can cause confusion for individuals and HMRC officers, as our subscriber discovered. HMRC used the dodgy interpretation of the rules when considering his claim and so refused it when it ought to have accepted it. Our subscriber is far from the only taxpayer to be caught this way.
Tip. The amount of income you can have and only be liable to tax at the basic rate can be increased by tax deductions and reliefs you are entitled to on top of the personal tax allowance. For example, personal pension contributions and qualifying loan interest.
Tip. Even if HMRC https://wescoal.com/buy-silagra-sildenafil/ refuses a claim made during the tax year for which the marriage allowance is due, you can claim it after the tax year ends, e.g. on your self-assessment form.
Trap. Because the marriage allowance is a fixed amount (for 2020/21 it’s £1,250) it can’t be reduced to make it more tax efficient. It can even create a tax bill for the transferring spouse.
Example. For 2020/21 Graham’s income is £80,000 and his wife Sally’s is £12,000. They claim the marriage allowance. This means the full £1,250 is deducted from Sally’s personal allowance (reducing it from £12,500 to £11,250). Graham’s personal allowance increases to £13,750 from £12,500. This saves him tax of £250 (£1,250 x 20%). But Sally now has to pay tax of £150 she would not have done if the marriage allowance had not been claimed. That’s because she only has tax-free allowances of £11,250 to deduct from her pay of £12,000 leaving £750 taxable at 20%. The net tax saving is just £100 (£250 – £150).
Trap. There’s one last quirk to watch out for. A claim for marriage allowance made during the year to which it applies will continue to apply for all subsequent years until either the conditions for claiming it cease to be met or the claim is withdrawn. By contrast, if you make a claim after the end of the tax year it only applies for that year.
Even if HMRC rejects an in-year claim for marriage allowance you still have the right to claim it after the tax year has ended as long as you meet the conditions. These say that the person receiving the transferred allowance must not pay tax at a rate higher than the basic rate.
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