2 weeks Ago By Alex Evans
State pensioners are just a few hundred pounds away from having to pay tax on their state pension income thanks to a combination of Triple Lock boosts and the tax-free allowance being frozen for years on end. This year, a pensioner with a full National Insurance record on the new state pension will get about £11,970, just a few hundred away from the £12,570 threshold where you start paying tax on income. But there is a way state pensioners - as well as others - can boost their tax-free personal allowance as high as £13,380.
In fact, this fully legal method works well if one person in a married couple is a state pensioner, as it requires one non-taxpayer. The tax free Personal Allowance has been frozen for years on end and unless there’s an unexpected u-turn from the government, is set to remain stuck at its current levels for at least another four years, until 2028. The Marriage Allowance means one person in a couple can transfer their unused Income Tax Personal Allowance to the other.
One person must be a non-taxpayer (earning less than £12,570, such as a state pensioner), and the other must be a 20% taxpayer (it won’t work if the person earns £50,270 or more). Both could be state pensioners, as long as one is earning between £12,570 and £50,270, the other is a non-taxpayer, and both are married or legally in a civil partnership. Those who are eligible can increase their tax-free take-home pay by £252 per year and backdate their claim for four years too.
This applies to up to four separate tax years if you backdate the claim. This means you could be looking at a tax rebate up to £1,258. HMRC will then adjust your tax code to give you the money you're owed, which when added to the standard Personal Allowance for the year (£12,570) comes out at £13,830 tax-free instead of £12,570, handing you the £1,260 for the four years' worth.
No matter which direction you move the tax allowance, you both benefit as a couple. HMRC explains with an example. It said: "Marriage Allowance lets you transfer £1,260 of your Personal Allowance to your husband, wife or civil partner.
"This reduces their tax by up to £252 in the tax year (6 April to 5 April the next year)." This can then be backdated for the past four years too, boosting one partner's Personal Allowance to £13,830 for a single year. Giving an example, HMRC sets out: "Your income is £11,500 and your Personal Allowance is £12,570, so you do not pay tax.
"Your partner’s income is £20,000 and their Personal Allowance is £12,570, so they pay tax on £7,430 (their ‘taxable income’). This means as a couple you are paying Income Tax on £7,430. "When you claim Marriage Allowance you transfer £1,260 of your Personal Allowance to your partner.
Your Personal Allowance becomes £11,310 and your partner gets a ‘tax credit’ on £1,260 of their taxable income. "This means you will now pay tax on £190, but your partner will only pay tax on £6,170. As a couple you benefit, as you are only paying Income Tax on £6,360 rather than £7,430, which saves you £214 in tax.
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