Married couple’s allowance is available where the following conditions are met (ITA 2007 s45/46):
- The couple are married or in a civil partnership for at least part of the tax year
- The couple are living together for at least part of the tax year
- The claimant meets the requirements of ITA 2007 s56 (UK resident, UK/EEA National etc.)
- One of the spouses or civil partners must have been born before 6 April 1935.
For marriages on or after 5 December 2005, the spouse or civil partner entitled to the allowance is the one with the highest income. Where the marriage was before 5 December 2005, it is the husband who is entitled to claim the allowance although it is possible for spouses married before this date to make an election for the rules applying to later marriages to apply to them.
The married couple’s allowance for the 2022-23 tax year is £9,145. This can be reduced if the individuals adjusted net income is in excess of £31,400 but is subject to a minimum amount of £3,460. (ITA 2007 s43) The restriction of the allowance is not discussed in detail here as it is not applicable to this client, but legislation covers this in ITA 2007 s45/s46.
The allowance works by deducting 10% of the available allowance against the individual’s income tax liability. It works as a tax reducer and therefore cannot be used to create a loss but can bring the individuals income down to nil. This means that in your client’s case, as he would be entitled to the full allowance, it will bring his income tax liability down to nil but there will still be some of the allowance remaining.
In this scenario where there is unused relief remaining, it is possible to transfer the unused amount to the other spouse. Your client could therefore consider transferring the unused amount to his wife to be offset against the income tax liability on her pension income to ensure the remaining amount is not wasted.
The conditions for the transfer are found in ITA 2007 s51 as follows:
- Transferor must notify HMRC that the conditions for a claim are met
- Transferee must make a claim for the transfer of the unused relief
- Transferee meets the conditions in ITA 2007 s56 (typically either UK resident, UK national or EEA national but see s56 for full list of conditions)
The claim can be made via self-assessment on the Additional Information pages (SA101) page AI 3. If your client is outside of self-assessment, they can contact HMRC by phone and make a claim:
https://www.gov.uk/married-couples-allowance/how-to-claim
It is also possible for the transferee spouse to make a transfer back of unused relief to the original claimant under ITA 2007 s52. This is unlikely to be needed in this scenario as the unused amount of relief transferred across to the wife will likely be fully utilised against the pension income.
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