Marriage Allowance

Tax Question

Can I elect for a Marriage Allowance transfer if my spouse earns more than the Personal Allowance?

Tax Answer

The Marriage Allowance (MA) is an allowance provided to spouses and civil partners by Finance Act 2014, Chapter 3A; where ‘spouse’ is used henceforth, it applies equally to civil partners. Where certain conditions are met, a spouse can elect to “transfer” 10% of their personal allowance (currently set at £12,570 for the 2022/23 tax year) to the other.

The way the election and transfer work mechanically are beyond the scope of this article, but the intention is for the MA to be available where one spouse can’t make full use of their tax-free personal allowance, and the effect to allow the higher earning spouse to make use of some of the lower earning spouse’s unused allowance.

It is a common misconception that to be eligible for the Marriage Allowance transfer, the lower earning spouse’s total income needs to be less than the personal allowance. This isn’t surprising, as HMRC’s own guidance at https://www.gov.uk/marriage-allowance states, ‘To benefit as a couple, you (as the lower earner) must normally have an income below your Personal Allowance – this is usually £12,570.

However, for UK resident individuals, the conditions set out at FA 2014, s55C state that an election can be made where:

  • The transferor is married for any part of the tax year in question, and
  • The transferor is entitled to the personal allowance, and
  • The transferor isn’t, or wouldn’t after a MA election, be subject to higher rates of tax during the tax year

I.e. basic rate taxpayers can always make an election to transfer 10% of the personal allowance to their spouse.

This can be useful in certain situations. For example, Mr and Mrs Jones are married. For the 2022/23 tax year, Mr Jones worked full time on a salary of £28,000. Mrs Jones had a part-time job and a salary of £11,000. She also receives £2,000 per year in dividends from a share portfolio that she inherited. Thus, Mrs Jones’ total income is £13,000.

Without a MA election

Mr Jones would have a tax liability of £3,086 ((£28,000 – £12,570) x 20%).

Mrs Jones would have a tax liability of nil, as her salary is covered by £11,000 of her personal allowance. The remaining £1,570 is used against the dividends, leaving £430 taxable. However, the first £2,000 of dividends are taxed at a rate of 0%.

Mr and Mrs Jones’ combined income tax liability is £3,086.

With a MA election

Mr Jones would have a tax liability of £2,834 ([(£28,000 – £12,570) x 20%] – (£1,260 x 20%)).

Mrs Jones would still have a tax liability of nil. Her personal allowance would be reduced to £11,310 (£12,570 – £1,260). The first £11,000 of her personal allowance would cover her salary. The remaining £310 would cover the first £310 of dividends. And the remaining dividends of £1,690 would be taxed at a rate of 0%.

Mrs and Mrs Jones’ combined income tax liability is £2,834, saving £252.

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