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Thursday, 4 October 2023

Money, tax and benefits

Married Couple's Allowance - worked examples for the tax year 2008-09

This guide explains how the age-related Married Couple's Allowance is calculated depending on your age and how much taxable income you have. To find out more about how the Married Couple's Allowance works read 'Married Couple's Allowance (includes civil partnerships)' - you'll find the link under 'Further information' at the end of the page.

How much Married Couple's Allowance might you get?

Married Couple's Allowance (MCA) rates

Age of older spouse or civil partner (born before 6 April 2023)	Min MCA	Max MCA	Claimant's income limit (see note below)
Under 75	£2,540	£6,535	£21,800
75 or over	£2,540	£6,625	£21,800

The maximum amount of Married Couple's Allowance for someone aged 75 or over is £6,625 and the minimum amount is £2,540. You receive 10 per cent of the allowance amount - which means your tax saving (based on a full year's eligibility) is at least £254 and up to £662.50. The actual amount depends on the claimant's income - as explained below.

Effect of claimant's income on Married Couple's Allowance

If your income is over £21,800 HM Revenue & Customs (HMRC) will reduce the Married Couple's Allowance.

The amount of the reduction is worked out as follows:

HMRC deducts half of your income - £1 for every £2 - that's over the limit from your age-related Personal Allowance, until the basic level of Personal Allowance is reached
they take anything that's left off the Married Couple's Allowance, until they reach the minimum amount - you'll always get the minimum Married Couple's Allowance (10 per cent of £2,540)
if your income doesn't reduce the age-related Personal Allowance to the basic level, then HMRC doesn't reduce the Married Couple's Allowance

Examples of the effect of your age on Married Couple's Allowance

Example - under 75

You're 74, married and have taxable income of £18,000:

your taxable income is £18,000
your tax-free Personal Allowance is £9,030 (the age-related Personal Allowance for people aged 65 to 74)
HMRC subtracts your tax-free allowance (£9,030) from your taxable income (£18,000), that leaves you with taxable income of £8,970 - your tax bill on this income is £1,794 (£8,970 x 20 per cent)
they then use your Married Couple's Allowance to reduce your tax bill
your Married Couple's Allowance is £653.50 (10 per cent of £6,535 - the maximum rate for under 75s)

Your tax bill is reduced to £1,140.50 (£1,794 - £653.50).

Example - 75 or over

You're 77, married and have taxable income of £18,000:

your taxable income is £18,000
your tax-free allowance is £9,180 (the age-related Personal Allowance for 75s or over)
HMRC subtracts your tax-free allowance (£9,180) from your taxable income (£18,000), that leaves you with taxable income of £8,820 - your tax bill on this income is £1,764 (£8,820 x 20 per cent)
they then use your Married Couple's Allowance to reduce your tax bill
your Married Couple's Allowance is £662.50 (10 per cent of £6,625 - the maximum rate for 75s or over)

Your tax bill is reduced to £1,101.50 (£1,794 - £662.50).

Examples of the effect of your income on Married Couple's Allowance

Example

You're 74, married or in a civil partnership and have taxable income of £29,400. HMRC subtracts the income limit (£21,800) from your taxable income (£29,400) - this shows that you're £7,600 over the limit.

They take half of this (£3,800) off your allowances like this:

first HMRC reduces your age-related Personal Allowance of £9,030 by £2,995 to the minimum basic Personal Allowance of £6,035 - this leaves £805 (£3,800 - £2,995)
next they subtract £805 from the higher Married Couple's Allowance entitlement (£6,535) bringing it down to £5,730
your Married Couple's Allowance is £573 (10 per cent of £5,730)

This is the amount by which HMRC will reduce your tax bill.

Example

You're 77, married or in a civil partnership and have taxable income of £29,400. HMRC subtracts the income limit (£21,800) from your taxable income (£29,400) - this shows that you're £7,600 over the limit.

They take half of this (£3,800) off your allowances like this:

first HMRC reduces your higher age-related Personal Allowance of £9,180 by £3,165 to the minimum basic Personal Allowance of £6,035 - this leaves £655 (£3,800 - £3,145)
next they subtract £655 from the higher Married Couple's Allowance entitlement (£6,625) bringing it down to £5,970
your Married Couple's Allowance is £597 (10 per cent of £5,970)

This is the amount by which HMRC will reduce your tax bill.