Is there any point claiming Marriage Allowance?

RobinJay

In all the discussions about frozen personal allowances the possibility that all state pensioners will be taxed on their state pension by 2027 doesn't take account of the effect of Marriage Allowance. Where the tax paying partner is in the higher tax band, it may still make sense to shift some of the tax liability to the non-taxed partner. 

However, where both are in receipt of the new state pension, and one partner has a small private pension, it used to make sense for the partner who paid tax on their small private pension to have the benefit of using 10% of their partner's tax allowance, by claiming Marriage Allowance. 

This is now completely undermined, because the new state pension is only going to be £35 under the frozen personal tax allowance. The partner who donated some of their tax allowance will presumably be liable for tax on their state pension in the next tax year (2026) not from 2027. 

What is the best thing to do? Cancel the claim for Marriage Allowance just in case personal allowances remain frozen and so avoid both pensioners having to pay tax? Presumably the same amount of tax will be paid whichever way it is collected (if both are basic rate tax payers). 

The alternative is to ignore the issue, and let the partner who donates their tax allowances via Marriage Allowance to start paying tax straight away. This is surely not a good thing for HMRC to do: they will not be getting any more money in taxes, but they will be doubling the number of people paying it - because both partners will be having taxes deducted from their state pension instead of just one. This will double their costs for collecting the same taxes and undermine the benefit of Marriage Allowance altogether for those on the lowest private pension incomes. 

If maintaining Marriage Allowance as a benefit is still government policy, something needs to be done about the frozen personal allowances sooner than waiting until 2027. 

Dazed_and_C0nfused

RobinJay said:

In all the discussions about frozen personal allowances the possibility that all state pensioners will be taxed on their state pension by 2027 doesn't take account of the effect of Marriage Allowance. Where the tax paying partner is in the higher tax band, it may still make sense to shift some of the tax liability to the non-taxed partner. 

However, where both are in receipt of the new state pension, and one partner has a small private pension, it used to make sense for the partner who paid tax on their small private pension to have the benefit of using 10% of their partner's tax allowance, by claiming Marriage Allowance. 

This is now completely undermined, because the new state pension is only going to be £35 under the frozen personal tax allowance. The partner who donated some of their tax allowance will presumably be liable for tax on their state pension in the next tax year (2026) not from 2027. 

What is the best thing to do? Cancel the claim for Marriage Allowance just in case personal allowances remain frozen and so avoid both pensioners having to pay tax? Presumably the same amount of tax will be paid whichever way it is collected (if both are basic rate tax payers). 

The alternative is to ignore the issue, and let the partner who donates their tax allowances via Marriage Allowance to start paying tax straight away. This is surely not a good thing for HMRC to do: they will not be getting any more money in taxes, but they will be doubling the number of people paying it - because both partners will be having taxes deducted from their state pension instead of just one. This will double their costs for collecting the same taxes and undermine the benefit of Marriage Allowance altogether for those on the lowest private pension incomes. 

If maintaining Marriage Allowance as a benefit is still government policy, something needs to be done about the frozen personal allowances sooner than waiting until 2027. 

All State Pensioners aren't going to be taxed on their State Pension by 2027 though.  Probably not even 2037.

An increasing number will be, especially those receiving the new State Pension but plenty of those under the old basic State Pension rules are a long way from having to worry about paying tax on it.

Each couple will need to consider this from their own perspective and it may well be cancelling will be the sensible option soon where a couple are both getting the standard new State Pension.

Fortunately no one can "claim" Marriage Allowance, it is up to the person agreeing to have a reduced Personal Allowance to apply and they can cancel it if they wish.

And there are presumably a lot of couples not getting State Pension who are still benefiting from Marriage Allowance.

Rodders53

RobinJay said:  Where the tax paying partner is in the higher tax band, it may still make sense to shift some of the tax liability to the non-taxed partner. 

Nope.  The way it works is the other way... Low income / non taxpayer gifts some tax free allowance to the higher earner.

My understanding is that once one becomes a Higher Rate (40%) Taxpayer the Marriage Allowance can't be used / transferred at all;  and will be cancelled by HMRC if used previously.

Naturally best that a non-taxpayer gets the savings interest or income from Rental rather than the Higher Rate taxpayer, if that can be arranged (and people trust each other).

Marriage Allowance: How it works - GOV.UK does give examples where it is still beneficial to transfer

You can benefit from Marriage Allowance if all the following apply:

• you’re married or in a civil partnership

• you do not pay Income Tax or your income is below your Personal Allowance (usually £12,570)

• your partner pays Income Tax at the basic rate, which usually means their income is between £12,571 and £50,270 before they receive Marriage Allowance

Marcon

RobinJay said:

In all the discussions about frozen personal allowances the possibility that all state pensioners will be taxed on their state pension by 2027 doesn't take account of the effect of Marriage Allowance. 

What is the best thing to do? 

If maintaining Marriage Allowance as a benefit is still government policy, something needs to be done about the frozen personal allowances sooner than waiting until 2027. 

About half the state pensioners in the country are receiving an amount less than the new State Pension - that's at least several million.

The best thing to do is continue to transfer Marriage Allowance where eligible and where it is financially advantageous to do so. That will be for each couple to decide.

There is no chance that frozen personal allowances will be thawed any time soon - far more likely the freeze will continue for some years to come.

benny5

My wife's SP increase for the coming tax year 2026-27 will result in the Marriage Tax Allowance having a negative impact on our tax payments.

My question is, at what point do we need to reverse this decision?

molerat

Before the end of this tax year to cancel for next year

benny5

So we could do it now and it wont impact on our liability for the current year 2025/26.

molerat

benny5 said:

So we could do it now and it wont impact on our liability for the current year 2025/26.

Correct.........

benny5

My OH has now been in touch with HMRC and cancelled the allowance transfer for 2026/27.

She felt slightly aggrieved when a Tax Demand arrived yesterday for the year 2024/25 and now, we expect another one for the current year 2025/26. These demands will swallow almost half of her SP increase. (I realise I have benefited from the transfer)

Now, if we can believe what the Chancellor told Martin recently, and she has a history of being truthful, then there shouldn’t be a tax liability next year when the OH’s SP exceeds the £12570 threshold.