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Married couples missing out on tax allowance due to a loophole | Personal Finance | Finance

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Married couples may be overlooking the marriage tax allowance due to issues applying for it – or even not knowing they are eligible. It is estimated that two million couples are eligible for the tax-free allowance but haven’t applied for it.

GOV.UK details that the marriage allowance permits the transfer of £1,260 of your Personal Allowance to your spouse or civil partner, which can reduce their tax by up to £252 for the tax year running from April 6 to April 5 of the next year. This is advantageous for couples where the lower earner’s income is below the Personal Allowance, usually £12,570.

Claims can be backdated to any tax year since April 5, 2020, for which you were eligible for the Marriage Allowance. Nevertheless, there is a complication. The rules require the tax-paying partner to be a basic rate payer, with earnings between £12,571 and £50,270. However, a loophole indicates that eligibility may still apply if earnings exceed £50,270, provided you contribute to a pension or make a gift aid donation.

Money guru Martin Lewis has previously said: “There are around a staggering 2.1 million couples out there who are eligible for this, it is big money, and they are not claiming it.”

Tax specialists at RSM said it has encountered numerous clients who were refused the marriage tax allowance by HMRC due to this issue. They suggest that potentially thousands might be discouraged from applying for the allowance because of the “unclear” instructions on the website.

To be eligible for the Marriage Allowance, your partner must be a basic rate taxpayer, typically earning between £12,571 and £50,270. In Scotland, your partner should be paying the starter, basic, or intermediate rate, which generally means an income between £12,571 and £43,662.

Emma Newsome, a tax associate at RSM, said: “The root of the issue lies with HMRC‘s unclear guidance. A person can remain a basic rate taxpayer when they make a personal pension contribution or gift aid donation in the relevant tax year. This means it is possible for an individual to have income exceeding the £50,270 basic rate threshold while remaining a basic rate taxpayer.”

RSM observed numerous clients whose initial marriage tax allowance claims were denied due to unclear guidance. Nevertheless, these claims were subsequently approved upon reapplication.

HMRC estimates approximately 4.2 million couples qualify for the tax break, yet only 2.1 million have claimed it. Consequently, about 2.1 million couples are not reaping the benefit. Therefore, if merely 0.5 per cent of claims are erroneously rejected or remain unsubmitted due to rule misinterpretations, as many as 21,000 claims could be affected.

However, HMRC has refuted these claims. A spokesperson for HMRC stated: “There are no problems with processing applications for Marriage Allowance. Eligibility is based on the rate of tax you pay. For the majority of people, this will be based on your income.”

Personal Finance expert Mr Lewis has previously stressed the ‘Marriage Allowance’ can only be claimed by those in a formally recognised commitment as it doesn’t apply to those cohabiting together. Martin explained it’s an “important perk that can be very worthwhile”, especially as some people may be able to backdate the claim and get a lump sum.

The online Marriage Allowance calculator on GOV.UK is the quickest and easiest way for couples living in Scotland, England, Wales and Northern Ireland to check if they are eligible for the tax boost.

How can you apply for Marriage Allowance?

You can submit an application for Marriage Allowance online and it’s completely free to do so here. If both partners have no other income apart from their wages, the one who earns less should be the one to make the claim.

The official website advises: “If either of you gets other income, such as dividends or savings, you may need to work out who should claim. You can call the Income Tax helpline if you’re unsure.

“Changes to your Personal Allowances will be backdated to the start of the tax year (April 6) if your application is successful.”

A warning from Martin Lewis’ Money Saving Expert

Martin Lewis’ Money Saving Expert (MSE) has issued a warning that applying is free and to stay alert for scams. They caution: “Beware against googling ‘marriage tax allowance’. Some shyster firms will charge you for applying (they try to look official), but it’s FREE to apply. Follow our guide and the correct links below to do it safely and at no cost.”

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