PENSIONERS can reduce their tax bill by as much as £252 by taking advantage of an often-overlooked HMRC perk.
The marriage tax allowance allows people to transfer some of their personal tax-free allowance to their husband, wife or civil partner.
While most people use this in their working lives, it can also be a valuable tool after retirement, particularly where one partner has most of the income, and the other just has some state pension entitlement.
The marriage allowance allows someone with a low income to transfer their unused personal tax allowance to a husband, wife or civil partner.
The personal allowance is the amount of income that you can have without paying any tax at all. Currently, it’s £12,570 for anyone who earns under £100,000 a year after pensions and other deductions.
Anything someone earns above their personal allowance is taxed at their marginal rate, which is 20% on income between £12,571 and £50,270 and higher on earnings after that.
If you or your partner have an income of more than £50,270, you can’t take advantage of the marriage allowance perk.
For couples that qualify, the lower earner can transfer up to £1,260 of their personal allowance across. This means that the higher earner would have a tax-free allowance of up to £13,830, meaning they pay less tax on their income.
If you transfer the maximum amount, it works out as a tax saving of £252 a year.
Transferring unused personal allowance across means that the higher earner has more money in the 0% tax bucket.
You still pay income tax when you’re retired, and it’s worked out in exactly the same way. So, in couples where one person only gets the state pension, they will have some spare personal allowance that they can transfer.
That’s because the state pension is worth just £11,502.40 a year currently. That means someone on the full state pension with no private savings would have £1,260 of their personal allowance available to transfer to a spouse or civil partner.
If their partner has a higher pension, for instance through a workplace scheme, transferring the spare allowance across means that more of their income will be tax free.
Someone who wasn’t getting the full state pension, perhaps because they didn’t have enough National Insurance Credits, could potentially transfer the maximum of £1,260, which would save £252 off the tax bill each year.
You can benefit from Marriage Allowance if all the following apply:
You can backdate your claim to include any tax year since 5 April 2020 that you were eligible for Marriage Allowance. Your partner’s tax bill will be reduced based on the rates for the years you’re backdating.
If you or your partner were born before 6 April 1935, you might benefit more as a couple by applying for Married Couple’s Allowance instead.
Your Personal Allowance will transfer automatically to your partner every year until you cancel Marriage Allowance. You need to make sure you do this if your income changes or your relationship ends.
The easiest way to apply for marriage allowance is online, and it’s completely free. Generally, the person with the lowest income should make the claim, but remember you need to include all sources of income including pensions, dividends, savings, any work-based earnings, and even things like renting a room out.
If you don’t want to apply online, you can fill in the Marriage Allowance form MATCF and send it to the address that’s printed on the form.
If your new Personal Allowance is lower than your income, you might have to pay some income tax. However, you might still benefit as a couple.
Marriage Allowance will only stop if you cancel it yourself. You need to do this if:
You can cancel Marriage Allowance online, but you might need to prove your identity.
If you need any help, either with claiming the allowance or reporting a change of circumstances, you can ring the helpline on: 0300 200 3300.
AT the moment the current state pension is paid to both men and women from age 66 - but it's due to rise to 67 by 2028 and 68 by 2046.
The state pension is a recurring payment from the government most Brits start getting when they reach State Pension age.
But not everyone gets the same amount, and you are awarded depending on your National Insurance record.
For most pensioners, it forms only part of their retirement income, as they could have other pots from a workplace pension, earning and savings.
The new state pension is based on people’s National Insurance records.
Workers must have 35 qualifying years of National Insurance to get the maximum amount of the new state pension.
You earn National Insurance qualifying years through work, or by getting credits, for instance when you are looking after children and claiming child benefit.
If you have gaps, you can top up your record by paying in voluntary National Insurance contributions.
To get the old, full basic state pension, you will need 30 years of contributions or credits.
You will need at least 10 years on your NI record to get any state pension.
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