How landlords can save tax with the Marriage Allowance

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Date: 24 May 2021

Miniature couple on steps of rising coins on pink background, depicts tax savings for married couples

In the UK, landlords are able to save tax by sharing the Personal Allowance of their lower-earning spouse. This way, they can maximise the total household's take-home pay without falling foul of the taxman.

However, there are strict rules. And it's for this reason that we've asked Mike Parkes from GoSimpleTax to explain the Marriage Allowance below, along with how landlords can qualify.

What is the Marriage Allowance?

The Marriage Allowance is a tax perk for married couples and those in civil partnerships. It allows households to share part of their Personal Allowance – specifically, the Personal Allowance of the lower earner who is able to transfer £1,260 to the higher earner.

The higher earner will then receive a tax credit equivalent to the amount of Personal Allowance that has been transferred to them. Once the higher earner's tax bill arrives, there will be a deduction of the same size.

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Who is eligible for the Marriage Allowance?

There are two financial requirements you'll need to meet in order to receive the allowance:

  • The lower-earning partner's pay before tax must be less than the Personal Allowance – which, as of 2021/22 and until at least 2026, is £12,570.
     
  • The higher-earning partner's salary must fall between £12,571 and £50,270, making them a basic-rate taxpayer.

Provided you meet this criteria, you can request that HMRC transfers any unused Personal Allowance from the lower earner to the higher earner. Within 14 weeks of registering your interest in claiming the Marriage Allowance, HMRC will contact you and ask you to complete an application form.

How does the Marriage Allowance work?

Once HMRC has approved your transfer application, the lower earner can give a maximum of £1,260 to their partner's Personal Allowance. If the lower earner has an income of less than £11,310 (the Personal Allowance minus £1,260), you can do this without being liable to pay any tax.

Currently, those earning above £11,310 but below £12,570 can still transfer £1,260 of their Personal Allowance, but they will become liable to pay tax on any income in excess of £11,310. This means the higher earner still makes a saving, but the total saving made by the household is lower.

It's worth bearing in mind that you're able to claim Marriage Allowance while on maternity leave or if you're unemployed. However, once set up, this allowance will be transferred to the higher-earning spouse automatically every year until you cancel it or until your partnership comes to an end.

If your financial situation changes midway through the tax year, don't worry – HMRC will simply ask you to disclose your total income at the end of the tax year via a P800 form. Whether because the lower earner exceeds £12,570 or the higher earner exceeds the basic-rate tax band, you're required to fill out the form, helping HMRC adjust your tax code for the following year.

What do landlords get out of it?

Provided they meet the above requirements, everyone is eligible – whether they're self-employed and have a large portfolio or are employed and have invested in one buy-to-let property. The reason why landlords are encouraged to transfer their Personal Allowance is because it allows the household to maximise rental earnings.

This is especially true if the higher earner works full-time while the lower earner handles the property management side of things, as the employment income will come at the cost of rental earnings. However, by transferring some of their Personal Allowance, the higher earner is able to claim more tax relief at no cost to the lower earner.

For more information about how the Marriage Allowance works, and how you can apply for it, check out the GOV.UK website.

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