For some older people there are special allowances that could reduce your tax bill. These are available for married couples or civil partners where at least one of you was born before 6 April 1935, and for certain maintenance payments following a marriage break-up.
Married couple's allowance (MCA)
Maintenance payments
You are entitled to this allowance if you are married or in a civil partnership, and at least one of you was born before 6 April 1935.
The allowance is set annually and is different from a personal allowance as it does not reduce your taxable income, but is used to calculate an amount to come off your tax bill.
10% of the allowance set for the tax year can come off your tax bill. For 2012/13 the full allowance is £7,705, which means you get a maximum deduction of £770.50. But the amount you get can be affected by your income if it is over a certain amount, in the same way that your age-related personal allowance can be reduced (more information is given below, so read on). You can find out the amount of the allowance for previous tax years under Tax and NIC rates.
MCA is due for each tax year that you are living together as husband and wife or civil partners and it is also given in full in the year of separation, divorce or the death of either spouse/civil partner.
| Frank and Sue - separation - MCA Frank and Sue, both aged 76, separated during the current tax year 2012/13. Frank's income for the year was £12,000. He will receive the full MCA of £7,705 giving him £770.50 off his tax bill. |
In the year your spouse or partner dies you should also get the balance of MCA not used against their income without needing to make a claim, but HMRC have been known to miss this point so do check you get it.
| Roger - MCA in year of death Roger aged 80 died during 2012/13. His income before allowances was £11,600 and the tax he was due to pay for the year amounted to £200. His MCA was worth £770.50 so the balance of £570.50 is available for his widow to use against her tax bill. |
In the year of marriage or registration of a civil partnership, the amount to come off your tax bill is one twelfth of the above amounts for each complete tax month (starting on 6th) that you were married. Let your tax office know as soon as possible if you marry or register in a tax year and qualify because one of you was born before 6 April 1935. You will get your tax relief quicker.
| Jock and Marie - marriage in tax year - MCA Jock and Marie both aged 78 married on 24 May 2012. Marie has only State pension and Jock has income before allowances of £12,000. His MCA for 2012/13 is £7,705 x 10/12 or £6,421. Jock can therefore deduct £642.10 from his tax liability for 2012/13. |
If you are a married couple who qualified for the allowance before 5 December 2005, the married couple's allowance is given to the husband. However, a married woman can choose to have up to £1,480 of it herself (£148.00 off her tax) and can have £2,960 (worth £296 off her tax) if both husband and wife agree. The balance is used to reduce the husband's tax bill.
For couples (married or civil partners) who first qualify for married couple's allowance from 5 December 2005, MCA is given to the partner with the higher income. The other partner can choose to have up to £1,480 MCA (£148.00 off their tax) and can have £2,960 (worth £296 off their tax) if both partners agree. The rest has to be taken off the tax bill of the partner who is entitled to the allowance.
It is also possible for a couple married before 5 December 2005 to elect for the new rules to apply to them. Your tax office will be able to help you make the change.
Transfers of the basic allowance are made by completing and submitting HMRC’s form 18. The claim then applies from the start of the tax year following the claim until you withdraw your claim.
Where you are unable to use your full MCA in any tax year you can ask for the balance (or ‘surplus’) to be transferred to your spouse or civil partner. The request is made on a form 575.
| Jim - surplus tax allowances Jim is aged 79. His income before allowances for 2012/13 was £13,000 and the tax he was due to pay for the year amounted to £500. His MCA was £7,705 @ 10% or £770.50 so the balance of £770.50 - £500 = £270.50 is available for his wife to use against her tax liability. This is a similar situation to example Roger where the husband dies but in this case it is necessary to elect to transfer the surplus allowances using form 575. |
How does higher income reduce my MCA?
The MCA can be reduced for a couple when your husband's (or for those married or registered after 5 December 2005, the higher earning spouse or civil partner's) income is above an amount set for each year. The income of the wife or lower earning spouse or civil partner is never taken into account.
The minimum MCA that you can receive is £2,960 for 2012/13 (£296 off your tax bill) and you will be entitled to this amount no matter how much income you have.
Have a look at the table below. If your age falls into a particular category and your income exceeds the corresponding figure alongside - you will just receive the minimum MCA for 2012/13.
For a note of what is included as income for this calculation have a look at the personal allowances section. The figure of income used is the same when working out the allowance reduction for both the married couple's allowance and the personal allowance.
| Either spouse born before 6 April 1935 Only minimum allowance if husband (or for those married or registered after 5 December 2005, the higher earning spouse or civil partner): | under 65 and income before allowances greater than | | £34,890 | | 65-74 and income before allowances greater than | | £39,680 | | 75 or over and income before allowances greater than | | £40,000 | | |
If the husband's or higher earning partner's income is over £30,510, but does not exceed the amounts in the table above, you will receive more than the minimum MCA but less than the full allowance in 2012/13.
To work out what allowance you will be entitled to, you can follow the calculation through the stages involved.
(i) First, work out your income before allowances
| Josh - income over upper limit - basic personal allowance only Josh has income before allowances of £31,400 for 2012/13. He is aged 82 and his wife is 76, so Josh has exceeded the limit of £30,510 but he has not reached the upper limit of £40,000. He will get a reduced allowance, but this will be more than the minimum of £2,960. Josh's income is too high for him to get any higher personal allowances so he just gets the basic personal allowance of £8,105. |
(ii) Work out your allowances if there are no restrictions
| | | | | Personal allowance | | | 10,660 | | MCA | | | 7,705 | | Total possible allowances | | | 18,365 | |
(iii) Work out the amount by which your income exceeds the lower limit we mentioned for reducing your personal allowance
| | | | | Income before allowances | | | 31,400 | | Lower limit | | | 25,400 | | Difference | | | 6,000 | |
(iv) Divide the difference by 2
| Difference | | 6,000 | | Divided by 2 | | 3,000 | |
(v) Reduce the total allowances in (ii) by the answer from (iv)
| Total allowances | | 18,365 | | Restriction | | 3,000 | | Reduced total allowances | | 15,365 | |
(vi) Finally take off the personal allowance given from the reduced allowances to leave the MCA available.
| Reduced total allowances | | 15,365 | | Less: Personal allowance | | 8,105 | | MCA available to Josh | | 7,260 |
Josh can deduct £7,260 @ 10% or £726 from his 2012/13 tax bill |
| Tax Tip The MCA is always based on the level of the husband's income and never that of the wife or joint incomes. It may be worth transferring investments from husband to wife if this restriction to your MCA is likely to occur. From December 2005 civil partnerships and also new marriages meeting the age criteria have an allowance based on the income of the highest earner. Again, the lower earner’s income is not taken into account in calculating any MCA restriction. There is no change to the arrangements for existing marriages unless you elect to be treated in the same way as a new marriage. But take care, if the wife’s income is higher than the husband’s, you would not wish to make this election as you would get less MCA. |
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If you separate or divorce and either your former spouse/civil partner or you were born before 6 April 1935, then a husband or wife or civil partner making maintenance payments by Court Order is entitled to claim a reduction to their tax bill. The payments must be made to the ex-spouse or ex-civil partner. Payments to or for the benefit of children do not qualify.
The deduction to be claimed is:
- 10% of £2,960 (£296) or
- 10% of the amount paid, whichever is the smaller
- Full relief, as well as married couple's allowance, is available in the year of separation but not after the spouse or civil partner remarries or registers a new civil partnership.
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