Transferable tax allowance

Produced by Tolley
  • (Updated for Budget 2020)
Transferable tax allowance

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Transferable tax allowance
  • Who benefits from the transferable tax allowance?
  • Qualifying conditions
  • Scottish taxpayers (2017/18 onwards)
  • Non-residents
  • Making the election
  • Method of relief
  • Transferable tax allowance where one of the couple has died
  • Making the election ― personal representatives

From 6 April 2015, an individual can elect to transfer 10% of the personal allowance (£1,250 in 2020/21 and 2019/20) to the spouse or civil partner where neither party is a higher rate or additional rate taxpayer. The legislation calls this the ‘transferable tax allowance’ but the GOV.UK website refers to it as the ‘marriage allowance’.

The transferor’s personal allowance is reduced by the amount transferred. Although, see ‘Transferable tax allowance where one of the couple has died’ below for the exception to this rule.

The transferee obtains income tax relief via a tax reduction of 20% of the transferred amount deducted at Step 6 of the transferee’s income tax computation.

Who benefits from the transferable tax allowance?

The transferable tax allowance is of benefit where one of the couple is not able to utilise the full personal allowance or the taxable income after the deduction of the personal allowance would otherwise be fully taxed at 0% under the starting rate for savings, savings nil rate or dividend nil rate.

However, as noted in ‘Transferable tax allowance where one of the couple has died’ below, an election might be beneficial where both parties are basic rate taxpayers and the transferee spouse or civil partner dies in the tax year. In this situation, the transferor’s personal allowance is not reduced even though 10% of it has been transferred.

Qualifying conditions

In order to make the election to transfer 10% of the personal allowance, both parties must:

  1. be entitled to a personal allowance (ie must fall into one of the residence categories listed in the Personal allowance guidance note)

  2. not be higher rate or additional rate taxpayers (and equivalent rates for savings and dividend income ― if the taxable dividends are covered by the dividend nil rate, the legislation looks at the rate of tax that would be paid if the dividend nil rate did not exist, ie would that dividend income be otherwise taxable at the dividend upper

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