Married couples could be missing out on thousands due to benefit loophole

Woman taking wedding ring off
-Credit: (Image: Dazeley/Getty)

Married couples could be missing out on a tax break due to a loophole in the rules, according to GOV. UK.

The marriage allowance allows you to transfer £1,260 of your Personal Allowance to your spouse or civil partner, reducing their tax by up to £252 in the tax year (April 6 to April 5 the next year). This is beneficial if the lower earner has an income below the usual Personal Allowance of £12,570.

Claims can be backdated to include any tax year since April 5 2020 that you were eligible for Marriage Allowance. However, The Sun reports a loophole where you may still qualify for the benefit if you earn more than £50,270 in income - but pay into a pension or make a gift aid contribution.

Tax experts RSM have noted several clients being denied the marriage tax allowance by HMRC due to this issue and believe that unclear guidance on the website could deter thousands from applying for the benefit.

The website advises that for your partner to pay Income Tax at the basic rate, which typically means their income is between £12,571 and £50,270 before they can benefit from Marriage Allowance. In Scotland, however, your partner must be paying the starter, basic or intermediate rate, usually earning between £12,571 and £43,662, reports Birmingham Live.

Tax expert Emma Newsome from RSM highlighted a key issue: "The root of the issue lies with HMRC's unclear guidance. A person can remain a basic rate taxpayer when they make a personal pension contribution or gift aid donation in the relevant tax year."

She further explained, "This means it is possible for an individual to have income exceeding the £50,270 basic rate threshold while remaining a basic rate taxpayer."

According to The Sun, RSM has seen many clients who've had their marriage tax allowance applications initially turned down due to the vague guidelines. Yet, these same claims were later accepted after being resubmitted.

HMRC's data indicates that around 4.2 million couples could take advantage of this tax relief, but only half have done so, leaving about 2.1 million not reaping the benefits. This implies that even if a small fraction, say 0.5 per cent, of applications are wrongly rejected or not filed because of confusion over the rules, as many as 21,000 claims could be affected.

HMRC has refuted claims of issues with the Marriage Allowance application process. An HMRC spokesperson clarified, "There are no problems with processing applications for Marriage Allowance. Eligibility is based on the rate of tax you pay. For the majority of people, this will be based on your income."

For those looking to apply for Marriage Allowance, it's a straightforward online process and completely free. If you and your partner solely rely on your wages, the lower earner should submit the application.

The official website advises: "If either of you gets other income, such as dividends or savings, you may need to work out who should claim. You can call the Income Tax helpline if you're unsure."

It also assures applicants that "Changes to your Personal Allowances will be backdated to the start of the tax year (April 6) if your application is successful."

Meanwhile, Martin Lewis' Money Saving Expert (MSE) team has issued a warning about applying for Marriage Allowance. They stress that the application process is free and urge the public to stay alert to scams.

MSE cautions: "Beware against googling 'marriage tax allowance'. Some shyster firms will charge you for applying (they try to look official), but it's FREE to apply. Follow our guide and the correct links below to do it safely and at no cost."