HMRC update as married couples may be entitled to tax refund of up to £1,220

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Marriage tax allowance claimants could be eligible for tax back, with 2.4 million couples in the UK potentially being entitled to the money. Anyone who is married, in a civil partnership and who aren’t benefiting from marriage tax allowance could be eligible for the tax return.

Marriage tax allowance enables eligible Britons to transfer £1,260 of their personal allowance to their spouse or civil partner to cut their yearly tax bill, and claims can be backdated by up to four years.

The personal allowance is the amount a person can earn before taxes are levied.

Currently, this tax break is worth £252 and if claimants have it backdated, they may be able to claim back £1,220.

To benefit from marriage tax allowance as a couple, the lower earner of the two must normally have an income below the Personal Allowance, which is usually £12,570.

People can benefit from marriage tax allowance if they’re married or in a civil partnership, do not pay Income Tax or their income is below their Personal Allowance and their partner pays Income Tax at the basic rate, which usually means their income is between £12,571 and £50,270 before they receive marriage allowance.

Marriage tax allowance cannot be claimed by those who are living together but are not married or in a civil partnership.

It should be noted marriage tax allowance claims will not be affected if the claimant or their partner are receiving a pension or live abroad, so long as they get a Personal Allowance.

Marriage tax allowance cannot be claimed alongside Married Couple’s Allowance.

Unfortunately, changing societal preferences may limit how many people end up receiving this support.

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In mid-December, the ONS released population estimates by marital status and living arrangements for 2020.

The results showed 61.3 percent of people over the age of 16 were living in a couple in 2020, with just over half of people being married or in a civil partnership (50.6 percent).

Those who were cohabiting sat at 13.1 percent, up from 11.3 percent in 2010. Additionally, the number who are living alone and have never married or been in a civil partnership is up eight percent in a decade and 14 percent over the past 20 years.

Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, commented on the data.

She said: “Anyone who has ever been married will admit that no marriage is perfect, but then again living alone or living together without tying the knot can be fraught with financial challenges and risks too.

“And as more and more people opt out of marriage, we need to understand the risks.

“More than half of us are still married or in a civil partnership, but marriage rates are dropping, Separate ONS statistics show that among those under 30, more than two thirds of couples are living together without getting married, along with one in five couples in their 40s and one in 10 people in their 60s.

“Not rushing into marriage makes an awful lot of sense, because it’s better to live with a partner first for a few years than live with a bad decision forever. But as more couples move in together for longer without marriage or civil partnership, it can make them vulnerable.

“Nobody would suggest marrying for money. However, if you are living together you need to understand the financial risks you face. You could be in for a horrible surprise if you split up, or fall foul of rules you never knew existed if your partner was to die.”

As cohabitation rates rise, Ms Coles continued by examining the risks associated with this.

She concluded: “If one of you died without a will, the other could get nothing. If the home is in their name, you could lose your home too, because everything passes to your partner’s children. If they have no children, everything in their name will pass instead to their parents. If you have a pension which is meant to pay out to a spouse when you die, some pensions don’t actually allow this to be left to an unmarried partner. Some will allow you to complete a ‘nomination of beneficiaries’ form, to ask for anything to pass to your partner, but if you don’t complete the form there are no guarantees that this will happen.

“If you split up and one of you has sacrificed their career for caring responsibilities, they have no right to spousal maintenance. On average women’s pay falls seven percent for each child they have – so without maintenance to make up the difference, this could leave them thousands of pounds worse off each year. If one of you owns the house in their name, the other may have no right to live in it or to a share of the property. If one of you has a sizable pension and the other has nothing, there’s no compulsion to share.

“You also miss out on money rules that benefit people who are married or in civil partnerships. One key is that within marriage or civil partnerships you can transfer assets between you without triggering a tax bill. It means couples can share assets between them to take advantage of both people’s allowances – from income tax to capital gains tax and dividends.

“The rules on inheritance tax also massively favour those who are married or in civil partnerships. Assets can be passed between spouses free of IHT, and when couples leave assets to one another, their nil rate bands also pass over – which can make an enormous difference to the tax due. Your spouse can also get an extra ISA allowance to cover inherited ISAs.”

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