State pensioners can get a boost to their prized tax-free Personal Income by using a little known HMRC perk for married couples.
Currently, the income tax Personal Allowance is frozen at £12,570, and will remain stuck at that level until at least 2031.
By which point, it will have been in place for a full decade, while earnings and indeed the state pension continue to creep up due to inflation.
While Rachel Reeves has confirmed that state pensioners who do not receive any other income apart from the state pension will be exempt from paying income tax if they exceed the threshold – which is due to happen in April 2027 following another Triple Lock increase – there are plenty of pensioners who will still be liable to pay tax on their pension and other earnings.
The state pension has always been taxable, but those who earned less than £12,570 never had to worry about it, as you don’t pay tax on earnings below this Personal Allowance threshold.
But with the state pension just £22 away from the threshold from this April, many who earn other income such as savings interest or are still in work, will exceed that threshold and, because they have other earnings, will not be exempt from tax.
However, married state pensioners could be able to avoid some tax by using the Marriage Allowance to boost their tax-free Personal Allowance.
State pensioners can boost tax-free allowance with little-known HMRC rule | GETTYMarried couples can boost their Personal Allowance by 10 per cent thanks to Marriage Allowance, a legal tax reduction vehicle offered by HM Revenue and Customs.
Those who are married, or in a civil partnership, can transfer some tax allowance between one another in order to avoid some tax.
One of the couple needs to be a non-taxpayer, i.e. earning under the £12,570 allowance, and the other must be a 20 per cent taxpayer, earning above it.
This is a fairly common situation for pensioners, where one person has retired but the other is still working.
The non-taxpayer pensioner then applies to HMRC to transfer 10 per cent of their allowance to their taxpayer partner.
This transfers £1,260 of their tax allowance to their partner, boosting the recipient’s tax-free allowance by £1,260 to £13,830 instead of £12,570.
It saves approximately £252 in a single tax year, and it can also be backdated for four more years, which is paid to you by cheque.
HMRC’s explanation via gov.uk says: “Marriage Allowance lets you transfer £1,260 of your Personal Allowance to your husband, wife or civil partner. Your Personal Allowance is the amount you can earn before paying tax.
“This reduces their tax by up to £252 in the tax year (6 April to 5 April the next year)”.
HMRC also stresses that it “will not affect your application for Marriage Allowance if you or your partner are currently receiving a pension”.
