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Retirement and the Marriage Allowance

Author: Samuel Beckingham
Updated: Jun 19, 2023
6 minutes read
  • How marriage allowance for pensioners works
  • What the Marriage Tax Allowance is
  • Understanding the tax benefits of marriage

When it comes to retirement, it certainly pays to see where you can make savings. One such way in which you can do this is by making use of the Marriage Tax Allowance. Marriage allowance for pensioners can make sense because your financial situation will have changed. Where it may not have made financial sense before to apply for the allowance, it can pay to know if you’ll get any savings this time around.

This article will discuss when marriage allowance for pensioners makes sense and how you might be able to make use of it, or whether cancelling an already active allowance would be more useful for you. The tax benefits of marriage are numerous, but saving money is more important when you’re only living off your pension. Make the most of it by seeing if you could save with (or without) the Marriage Tax Allowance.

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How Does Marriage Allowance for Pensioners Work?

In essence, applying for the Marriage Tax Allowance as a pensioner works the same as when you were working. During your working life, the lower earner of the married couple could transfer part of their tax-free personal allowance to the higher earner, which reduces the amount of tax the higher earner paid. With marriage allowance for pensioners, you can still apply for the allowance.

Marriage Tax Allowance works if the lower earner doesn’t earn more than £12,570, i.e., the amount you can earn tax-free a year. The savings for the higher earner come in the form of an additional £252 a year they can earn without paying tax on it. As long as the lower earner doesn’t get taxed or their financial situation doesn’t change so that they have to start paying tax, you will benefit as a couple. In terms of marriage allowance for pensioners, you will need to review your situation.

Recently Retired Couples Who Already Have Marriage Tax Allowance

If you made use of the Marriage Tax Allowance during your working life and you (or both of you) have since retired, it makes sense to see if you’re still benefitting from it. Marriage allowance for pensioners might seem tricky to understand or calculate, but it should be relatively straightforward.

As the lower earner who applied for Marriage Tax Allowance in the first place, you should review to see if your income exceeds £12,570. If you have both private and state pensions, this could exceed this value. If you’re over this threshold, you will need to pay 20% tax on it, so you’d be better off cancelling it. Marriage allowance for pensioners only makes sense if you can benefit as a couple. While the higher earner will then have their tax increased, the savings you will receive will outweigh this.

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You will have to be careful with private pension pots as these companies can deduct 20% tax from the income you’ll receive from it automatically. This could mean that you could be paying too much or too little tax. If you work out what your annual income should be, you can inform HMRC and they should rectify the tax deductions with the private pension provider. A little calculation can go a long way to help see if you benefit from the marriage allowance for pensioners.

Retired Couples Who Want to Make Use of Marriage Tax Allowance

The good news is that if you didn’t manage to make use of the Marriage Tax Allowance during your working life, you can still make use of it during retirement. All taxable forms of income apply in the eyes of Marriage Tax Allowance, which includes pensions. While marriage allowance for pensioners is possible, you should only apply if it makes sense for your situation.

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For it to make sense, one partner needs to not be paying any income tax and the other should be paying 20%. Any higher amounts don’t qualify. Marriage allowance for pensioners is only applicable for people born on or after 6th April 1935. If at least one of you was born before this time, you could make use of the more generous Married Couple’s Allowance instead.

Be wary if you’re close to the limit of paying income tax. If your pension is between £11,310 and £12,570, you might be worse off. The way tax is calculated means that your personal allowance is lowered at the same time, so if your income is not below £11,310, marriage allowance for pensioners won’t make sense for you.

Married Couple’s Allowance

At least one partner in the marriage needs to have been born before 6th April 1935 to qualify for this allowance. It works by transferring your personal allowance to your partner if you are unable to make use of it and can save you between £401 and £1,037.50 a year. It’s another marriage allowance for pensioners that could be more beneficial, as long as you qualify for it.

Backdate Marriage Tax Allowance

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As with all tax claims, you can backdate the Marriage Tax Allowance by up to four years. If you qualify for the years in which you’re eligible, you can receive up to £1,006 as a lump sum in backdated amounts. The yearly amounts for marriage allowance have been at £252 since 2021, but have been lower than this in previous years.

Marriage allowance for pensioners gives you the set relief for the following tax years:

  • 2024/2025 - £252

  • 2023/2024 - £252

  • 2022/2023 - £252

  • 2021/2022 - £252

  • 2020/2021 - £250

If you’ve only just retired, you may have qualified in the years leading up to your retirement, so you could backdate your claim at the same time. Marriage allowance for pensioners carries on instead of running out when retirement comes around. If you didn’t qualify, you can still apply, but the benefits will be seen in tax discounts every year instead of also retrospectively.

Marriage Allowance for Pensioners Depending on Situation

In reality, marriage allowance for pensioners won’t be beneficial for all couples. Here’s an example where it pays off.

The higher earning partner had an income close to £100,000 a year. When this higher earner retired, they made sure to manage their capital and pension to fall into the basic rate band of tax.

The lower earner didn’t have as big of an income during their working life and only has a smaller pension income under £10,000 a year. Since this amount is within the personal allowance, the couple can see a benefit of marriage allowance for pensioners. Although it is only a small amount of £252 a year, it is essentially something for nothing.

The tax benefits of marriage extend beyond your working life, and if you can make Marriage Allowance Tax work for you, it could help your situation. The important thing is to check what your outgoings are to see if you can qualify based on your tax rates.

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