I have heard there is a new allowance for married couples allowing them to transfer some personal allowance between spouses. Can you explain what this is and how it works?

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As of 6th April 2015 there has been a new scheme in place which allows individuals to transfer part of their unused personal allowance to their spouse or civil partner saving up to £212 in income tax.

You must meet all of the following criteria to qualify:

  • Be in a marriage or civil partnership
  • Have an annual income of less than £10,600 (including pensions, savings and investments)
  • Your partners annual income is greater than £10,600 but does not exceed £42,385
  • You were both born on or after 6 April 1935

Currently the individual personal allowance stands at £10,600 and anyone earning less than this does not pay any income tax. Under this new rule as much as £1,060 of this allowance that remains unused in the 2015-16 tax year can be transferred to a partner, so long as they are only paying tax on earnings that fall within the basic-rate band (£10,601-£42,385).

For example – partner 1 has a total income of £10,000 and partner 2 has an income of £40,000. Given that partner 1 has only £600 of unused personal allowance (£10,600-£10,000) this is the maximum that can be transferred to partner 2. This would have the effect of increasing the personal allowance of partner 2 to £11,200 shifting £600 out of the basic rate of tax into untaxed income. As such this transfer would save the couple in total £120 in tax over the 2015-16 tax year.

You must register you interest with HMRC at the below link  to register your interest for this relief so it is not lost:

https://www.gov.uk/marriage-allowance

As with all tax reliefs there can be tax planning opportunities and complications. We recommend that you seek professional advice should you be unsure as to your status.