Households can increase their tax-free Personal Allowance to £13,830 using a fully legal method that can also be backdated for several years with HMRC. The tax-free Personal Allowance has been frozen since 2021, and despite Prime Minister Andy Burnham promising to 'look at' the issue, the freeze on Income Tax bands is set to stay until 2031.
Fiscal drag pushes more into higher tax bands
This means the allowance will have been stuck at £12,570 for a full decade by the time it is eventually increased, if it is not frozen again. Due to 'fiscal drag', more people are paying more tax on their earnings as wages rise with inflation, leading to higher tax bills. In June, the Express reported that 2 million people have been pushed into higher tax bands due to the frozen thresholds.
Marriage Allowance can boost tax-free income
One way to increase your tax-free Personal Allowance requires being married or in a civil partnership. Couples 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 if backdated, potentially resulting in a tax rebate of up to £1,260.
HMRC will adjust your tax code to give you the money you're owed, which when added to the standard Personal Allowance of £12,570 comes out at £13,830 tax-free, giving you £260 back (20% of the extra £1,260). Any backdated years will be paid via cheque.
Eligibility and how it works
To be eligible, one partner must pay no income tax, earning under £12,570, for example if they are no longer working, lost their job, or are taking a career break for childcare. The other must be a basic rate taxpayer earning between £12,570 and £50,270 (once pension contributions are deducted). This process, called the Marriage Allowance, enables the lower-earning partner to transfer £1,260 of their Personal Allowance to their partner and reduce their tax bill by £252 for each year claimed.
AJ Bell director of personal finance, Laura Suter, 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."
Backdating and online claims
"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."
Changes for 2024-25
For 2024-25, a slight change allows someone earning between £11,130 and £12,570 to transfer their Personal Allowance, although earnings in between those amounts are still liable for tax. It still works out to a saving, just not as great as those earning less than £11,130. You can only backdate your claim for the current year and the past four financial years, so 2020-21 is too far back, but you can claim for this current year and the past four back to 2021-22.
