Marriage Allowance claims - HMRC confirm recommended practice
Since its introduction in 2015, the Marriage Allowance has allowed some married couples and civil partners to reduce their combined tax liability where one partner's income is less than their tax-free personal allowance. However, it has also caused a degree of confusion in how to claim it, especially where Self-Assessment is a consideration.
HMRC's Agent Update 111 provided confirmation of recommended practice when claiming the marriage allowance where one or both parties to the marriage/civil partnership is in Self-Assessment.
Recap: What is the Marriage Allowance?
If one person in a married couple or civil partnership earns less than £12,570 (the tax-free personal allowance), a claim can be made to transfer 10% of their personal allowance to their spouse or civil partner. This allows the higher-earner to benefit from part of their spouse or civil partner’s personal allowance, which would otherwise be wasted, and can mean the couple pays less tax overall.
To be eligible, the higher-earner must be a basic rate taxpayer in England or Wales (taxable income less than £50,270) or a basic, starter or intermediate rate taxpayer in Scotland (taxable income less than £43,662).
Recommended Practice - two Self-Assessment taxpayers
Where both spouses/civil partners are in Self-Assessment and wish to claim the transferrable marriage allowance, HMRC advise submitting the transferor's tax return 72 hours before filing the recipient’s return.
For example, Mr and Mrs Jones both file tax returns each year and have taxable income of £10,000 and £20,000 respectively. Mr Jones wishes to claim the marriage allowance transfer to enable Mrs Jones to benefit from 10% of his personal allowance, which would otherwise be wasted. Mr Jones' tax return should be filed first. The couple, or their tax adviser, should then wait at least 72 hours before submitting Mrs Jones' tax return.
This supports anecdotal evidence reported by ATT members based on practical experience, but HMRC have now confirmed this as the best way to ensure claims are processed correctly.
Recommended Practice - one Self-Assessment taxpayer
Where the marriage allowance is claimed outside Self-Assessment (eg using HMRC's recently launched form to apply by post) and either party also files Self-Assessment tax returns, no claim should be made via the tax return.
In these circumstances, HMRC's systems should already be set to make the marriage allowance transfer, and not making the claim via the tax return should help ensure it is processed correctly.
For taxpayers using HMRC's own online tax return completion service to file their Self-Assessment return, any attempt to claim the marriage allowance when completing their tax return will result in an automated message advising that the claim already exists.
For agents using third-party software to file a client’s tax return, not making the claim via their software in order to facilitate smooth processing of the tax return by HMRC will of course result in a different tax position being shown compared with HMRC's calculation (which will factor in the marriage allowance transfer). This will require tax advisers to adjust the tax liability figure when advising affected clients what their tax position is for the year, and to explain the difference compared with the return.
Does the claim carry forward?
Where the marriage allowance is claimed outside Self-Assessment , the claim will roll forward in the couples' PAYE coding notices and tax calculations each year until the transferor advises it should no longer apply.
By contrast, if the claim is made purely via Self-Assessment, it must be made on the transferor's tax return each year.
To address further complexities surrounding claiming the marriage allowance, the ATT plans to write a more detailed guide in due course. If you have any questions you'd like us to address as part of this, or relevant experiences of difficulties making the claim which you'd like to share please contact our technical team.