UK households can increase their tax-free Personal Allowance to £13,830 by using the Marriage Allowance scheme, which can also be backdated for several years directly with HMRC. The tax-free Personal Allowance has remained at £12,570 since 2021, and the freeze on Income Tax bands has been extended to 2031 under current plans.
Despite indications that Prime Minister Andy Burnham will "look at" the issue, he has stopped short of promising to unfreeze the threshold before 2031, unless changes are made at the next Budget this month. This means the allowance will have been frozen at £12,570 for a full decade by the time it is next increased.
How fiscal drag affects taxpayers
Because of "fiscal drag", more people are paying more tax on their earnings as wages rise with inflation, pushing more income into taxable bands. The Express recently reported that two million people have been pushed into higher tax bands due to the frozen thresholds.
The Personal Allowance is the amount you can earn before paying tax. Earnings above £12,570 are taxed at 20%, while earnings above £50,270 are taxed at 40% for higher-rate taxpayers, and 45% on earnings above £125,140 for additional-rate taxpayers.
Marriage Allowance eligibility and backdating
Couples who are married or in a civil partnership can increase their tax-free take-home pay by £252 per year and backdate their claim for four more years. This applies to up to four separate tax years, meaning a potential tax rebate of up to £1,260.
HMRC will adjust the tax code to give the money owed, which, when added to the standard Personal Allowance of £12,570, totals £13,830 tax-free instead of £12,570, giving £260 back (20% of the extra £1,260). Backdated years are paid via cheque.
To be eligible, one partner must pay no income tax, earning under £12,570, while the other must be a basic-rate taxpayer earning between £12,570 and £50,270 (after pre-tax workplace pension contributions). This process enables the lower-earning partner to transfer £1,260 of their Personal Allowance to their partner, reducing their tax bill by £252 for each year claimed.
Expert advice and claiming online
Laura Suter, director of personal finance at AJ Bell, explained: "More people are being dragged into paying higher levels of tax, largely due to frozen allowances and thresholds that haven’t kept up with inflation. But at the same time, many households are overlooking completely legitimate ways to earn tax-free income, simply because they don’t realise what’s available. A little bit of knowledge about how the tax system works can go a long way."
She added: "The marriage allowance is a great way to claim some money back if one half of the couple earns less than £50,270 a year and the other either earns less than £12,570 or doesn’t earn any money at all. The government lets those who are married or in a civil partnership share their tax-free earnings allowance each year. It means that if one of you hasn’t used up your personal allowance of £12,570 a year you can hand it over to your partner. That could save you up to £252 in the current tax year. It’s thought around two million couples are eligible for this tax break but not claiming it, and even those where one half of the couple is retired can claim the tax break.
"What’s even better is that you can backdate any claims for up to four years, assuming you were eligible in those years. You can claim it online directly through the government, you’ll just need yours and your partner’s national insurance numbers plus some forms of ID. You can check if you’re eligible using the government’s calculator. But beware of scam websites that are mocked up to look like the government website but are actually imposters."
For 2024-25, a slight change allows someone earning between £11,130 and £12,570 to transfer their Personal Allowance, although earnings between those amounts remain liable for tax. It still results in a saving, though not as great as for those earning less than £11,130.
Claims can only be backdated for the current year and the past four financial years, so 2020-21 is now too far back, but claims can be made for the current year and back to 2021-22.
