How Couples Can Beat HMRC Personal Allowance Freeze

It is no wonder that many UK taxpayers are feeling the squeeze with the freezing of tax-free Personal Allowance at £12,570 until at least 2028. On top of that, as wages surge to keep up with inflation, more people are being thrown into higher tax brackets.

But for married couples and civil partners, there is a little-known way to claw back some cash and yank up your tax-free allowance. It is called the Marriage Allowance, and it could be worth up to £1,258 if you act now.

What Is the Marriage Allowance?

The Marriage Allowance is a tax perk for couples where one partner earns less than the Personal Allowance threshold (£12,570) and the other is a basic-rate taxpayer (earning between £12,570 and £50,270). It allows the lower-earning partner to transfer £1,260 of their unused Personal Allowance to their higher-earning partner. This trims the higher earner’s tax bill by £252 a year and you can backdate your claim for up to four years, possibly pocketing a tidy £1,258 in tax rebates.

For the 2024/25 tax year, there has been a minor tweak to the rules. Now even if the lower-earning partner earns between £11,130 and £12,570, they can still transfer their allowance. But the savings will not be as meaningful as for those earning under £11,130, as earnings in that range are still hit with some tax.

How Does Marriage Allowance Work?

Let us break it down with an example.

Imagine Sarah is a stay-at-home parent, earning nothing, whereas her partner James brings home £40,000 a year. Because Sarah isn’t using her full Personal Allowance, she can transfer £1,260 of it to James. This means James’s taxable income falls by £1,260, saving the couple £252 in tax for the year.

But if Sarah and James have not claimed the Marriage Allowance before, they can backdate their claim for up to four tax years. That means they could receive a lump sum of £1,008 (£252 x 4) from HMRC. Add this to the £252 they will save in the current tax year, and they are looking at a total of £1,260 back in their pockets.

Once you have made a claim, HMRC will adjust your tax code to reflect the change, effectively boosting your tax-free Personal Allowance from £12,570 to £13,830 for the year.

Who Can Get Around Personal Allowance Freeze?

To qualify for the Marriage Allowance, you need to meet a few criteria:

• You must be married or in a civil partnership.
• One partner must earn less than £12,570. This could be because they are not working, have lost their job, are retired or are taking a career break for childcare.
• The other partner must be a basic-rate taxpayer. This means they earn between £12,570 and £50,270 (after pension contributions are deducted).

Why Aren’t More People Claiming?

You might be wondering why this is not common knowledge. After all, who would not want an extra £252 a year? The truth is, many people do not know the Marriage Allowance exists. HMRC does not exactly shout about it, and unless you are a tax nerd or have a particularly clever accountant, it is easy to miss.

Another reason is that the rules can feel a bit restrictive. If you are a higher-rate taxpayer (earning above £50,270), you are not eligible. And if both partners earn more than £12,570, you are out of luck too. But for those who do qualify, apply.

Conclusion

If you think you might be eligible, don’t put it off. The sooner you claim, the sooner you can start saving -- and if you have been eligible for the last four years, you could be in for a nice surprise. After all, who would not want an extra £1,258 in their pocket?

So, grab your partner, fire up the government website and get claiming. It is one of the easiest ways to give your finances a boost -- and who knows, you might even be able to treat yourselves to something nice with the money you save. Now that is what we call a win-win.