More than two million married couples and civil partners who claim a tax benefit called the marriage allowance could now find themselves targeted by HMRC. The marriage allowance applies where one partner pays basic rate income tax at 20 percent, while the other earns less than the £12,570 personal allowance and therefore pays no tax.
It allows the lower earner to transfer £1,260 of their personal allowance to their spouse or civil partner., saving up to £252 this tax year.
As many as two million more couples who could claim have failed to do so. Those who discover they have missed out can backdate their claim for up to four years, provided they were eligible in every one of those years.
However, pensions campaigner Ros Altmann has warned that couples who have taken advantage of this could face an unexpected income tax bill as a result. “Many may have no idea they need to pay tax at all, especially if they have never been liable before.”
She said the number of pensioners liable for tax has doubled since 2010, from 4.5 million to more than nine million.
That’s due to a combination of Chancellor Jeremy Hunt freezing tax thresholds for six years, and the triple lock driving up the value of the state pension.
The full new state pension is now £11,502, making it 92 percent of the £12,570 personal allowance, she said. “Pensioners who use the marriage allowance to give part of their personal allowance to their partner will have an even lower personal allowance of just £11,310. They are already at risk of being liable for tax without knowing.”
Most of those tipped into tax will be poorer pensioners with little more than their state pension to live on, Altmann said.
Many will be totally unaware of any liability and will probably never have filled in a tax return in their life.
“They risk being hit with fines and penalties for not paying a tiny amount of tax that they didn’t even know about,” she added.
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Stephen Lowe, director at the retirement specialist Just Group said a high number of pensioner couples claim marriage allowance, say, where one partner has given up work to act as an unpaid carer for an elderly parent, or is unable to work due to a health condition.
“With the state pension increasing many will see marriage allowance benefits reduced or reversed,” he said.
Lowe said “alarm bells should ring” among couples where the non-taxpayer’s taxable income is likely to be above the £11,310 reduced personal allowance. The whole £1,260 of personal allowance has to be transferred, so where non-taxpayer’s income is above £11,310, they may be pulled into starting to pay tax without giving an equal or bigger tax-saving to their partner.”
He added: “The first some couples will know is when they see more tax is being taken or receive a letter from HMRC asking for the extra.”