Pensioners could save up to £252 per year through an underused tax break from HMRC, financial experts have revealed.
The Marriage Tax Allowance scheme allows married couples and civil partners to transfer unused personal tax allowance between them, yet millions of eligible Britons fail to claim this benefit.
The tax relief is particularly valuable for retired couples where one partner receives only state pension income, allowing them to transfer up to £1,260 of their unused allowance to their spouse.
This scheme can help older couples avoid paying tax on their fixed private and state pension incomes, providing crucial support for household finances.
The scheme works by allowing a lower-earning spouse to transfer £1,260 of their unused personal tax allowance to their partner.
With the current personal tax allowance set at £12,570, this transfer can increase the higher-earning spouse’s tax-free threshold to £13,830.
The arrangement means the higher-earning partner can earn more income tax-free
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This is particularly beneficial for retired couples where one partner receives only the state pension of £11,502, leaving them with unused allowance to transfer.
The arrangement means the higher-earning partner can earn more income tax-free, resulting in the maximum annual saving of £252 for eligible couples.
The tax break applies to married couples and those in civil partnerships where one partner pays basic rate tax.
To be eligible for the Marriage Tax Allowance, one partner must earn below £12,570 annually whilst the other pays basic rate income tax.
The basic rate taxpayer’s income must be between £12,571 and £50,270 to qualify for the scheme. Neither partner can earn over £50,270.
The scheme applies to pension income in the same way as working-age earnings, making it particularly suitable for retired couples.
Those born before April 6, 1935, may benefit more from applying for Married Couples Allowance instead.
The allowance continues automatically each year until cancelled or circumstances change.
Applying for the tax break is straightforward through HMRC’s website or by calling 0300 200 3300. Applicants will need their National Insurance number and ID to complete the process.
Importantly, couples can backdate their claims as far as April 5, 2020, potentially receiving up to £1,008 in backdated tax relief.
The lower-earning partner should typically make the claim, considering all sources of income including pensions, dividends, savings, and any work-based earnings.
For those who prefer not to apply online, a Marriage Allowance form MATCF can be completed and posted to HMRC.
HMRC encourages potential claimants to check their eligibility using their online Marriage Allowance calculator, which takes just 30 seconds.
Once approved, the tax break automatically applies to the higher earner’s tax-free income until circumstances change.
Couples must cancel the allowance if their relationship ends, their income changes, or they no longer wish to claim.
