The married couple’s tax allowance is basically a tax break for people over 75 who are in a marriage or civil partnership.
If the couple live together and either one or both of them is aged 75 or over, or turns 75 within the current tax year, one of them may claim an additional allowance (on top of the personal allowance. Which of the couple is entitled to the claim depends on the date of the marriage or registration of the civil partnership.
For couple who tied the knot before December 5, 2005, the man is entitled to claim the allowance. For a ceremony which took place on or after that date, then the partner with the highest income is entitled to the allowance.
In both cases, if the partner entitled to claim is unable to take advantage of all or part of the allowance, it may be transferred in whole or in part to the other.
In 2011/12, the maximum Married Couple’s tax allowance has been raised to £7.295, up from £6,965 in the previous year. Unlike the Personal Allowance and the Age related Allowances, only 10% of the amount can be set off against income, bringing the effective value of the allowance down to £730.
The same income ceiling applies to the Married Couple’s Allowance as to the Age Related Allowances. For every £2 by which the total adjusted income exceeds £24,000, the allowance is reduced by £1. This also applies if the partner entitled to claim the Married Couple’s Allowance is under 65.
This means that the reduction in personal allowance or age related allowance is calculated first, and the Married Couple’s Allowance will only be reduced if there is still any allowance remaining above the minimum entitlement. It cannot, however, be reduced to below the minimum Married Couple’s allowance which can be claimed which in the 2011/12 tax year is £2,800. This leaves an actual married Couple’s Allowance of £280, as only 10% of the allowance can be claimed. The minimum allowance has been raised from a figure of £2,670 in the 2010/11 tax year.
If the marriage or civil partnership is registered during the current tax year, the entitlement to the Married Couple’s Allowance applies only to that portion of the year following the marriage or registration. This means that one twelfth of the allowance can be claimed for each month of the year including and following the month of the marriage.
In the case of dissolution of the partnership or the death of one of the partners, the allowance is paid in full for the current tax year.
Further Explanation of the workings of the Married Couples Tax Allowance
In practice, it works like this:
You’re 80 and you married your wife, who is aged 67, In August 2008.
You aren’t working, but the gross sum of your state pension and a private pension in 2011/2012 is £12,000. Your wife earns £50,000 a year.
Because you are over 75, your wife is entitled to claim the Married Couple’s Allowance because she earns more than you do and you were married after December 5, 2005.
Because you’re over 75, you have a Personal Allowance of £10,900 and this is not reduced because your income is less than the ceiling of £24,000.
Your wife is over 65 and so she is entitled to the lower rate of age related allowance. However her salary of £50,000 is £26,000 in excess of the ceiling, which means the Married Couple’s Allowance is reduced by £13,000 (£1 for every £2 above the ceiling).
Because her age related allowance may not be reduced below the basic personal allowance (£7,475), only £5,525 of this excess is subtracted from the age related allowance, leaving her the sum of £7,475 to be set off against her Married Couple’s Allowance.
But because the minimum Married Couple’s Allowance is £2,800, only £4,495 can be set off against the allowance, and this is done, leaving her with the minimum Married Couple’s Allowance of £2,800.
Thus her total claimable allowances are the age related allowance, reduced as calculated above, of £7,475 plus 10% of the minimum Married Couple’s Allowance or £280. This gives her total allowances of £7,755.
Because your wife has used all the Married Couple’s Allowance to reduce her income, there is no portion of the allowance remaining for her to transfer to you.