In addition to your personal allowance, there are some other tax allowances that can reduce the amount of tax you have to pay. Tax relief is given in different ways, depending on the allowance.
BLIND PERSON’S ALLOWANCE
Registered blind people can claim an allowance of £2,870 in 2023/24. This reduces your tax bill by being deducted from your taxable income before tax is worked out (in the same way as the personal allowance).
If both husband and wife are registered as blind, they can each claim the allowance. If you think you would be eligible, you should contact the HMRC helpline, 0300 200 3301, with relevant details of your situation (Directory, p 25).
MARRIAGE ALLOWANCE
Marriage allowance is not really an extra allowance; rather, it is the ability to transfer some of your personal allowance to your partner, if you are married or in a civil partnership. To be eligible, neither you nor your partner must be paying tax at more than the basic rate (or no more than the inter-mediate rate in Scotland). The most common situation where the transfer is worthwhile is if your income is too low to use your full personal allowance, but your partner is taxed on a bigger income.
The amount you can transfer is one-tenth of your personal allowance, so a fixed amount of £1,260 in 2023/24. The way your partner then gets tax relief is different from the personal allowance. Tax relief is worked out as 20 per cent of the £1,260 marriage allowance, which comes to £252. This amount is deducted from your partner’s tax bill, but cannot reduce the bill to less than zero.
You have to claim Marriage Allowance, and should normally do this online GOV.UK (Directory, p 36). The person with the lowest income should make the claim. If you cannot claim online, phone the HMRC general enquiries helpline on 0300 200 3300.
If you or your partner were born before 6 April 1935, consider claiming Married Couple’s Allowance instead as this is more generous.
MARRIED COUPLE’S ALLOWANCE
This is an extra allowance for older couples where one or both of them were born before 6 April 1935. In 2023/24, the full allowance is £10,375. Tax relief is 10 per cent of this – £1,037.50 – and given as a reduction in your tax bill. But the allowance cannot reduce your tax bill to less than zero.
However, that’s not the end of the story. The amount of Married Couple’s Allowance you can get also depends on your income. In 2023/24, if your income is more than £34,600, the Married Couple’s Allowance is reduced by £1 for every £2 of ‘excess income’. But the Married Couple’s Allowance is only ever reduced to a minimum amount of £4,010 (2023/24). That means the tax relief you get will be somewhere between £401 and £1,037.50, assuming your original tax bill is at least that much. To work out what you might get, there’s a calculator at GOV.UK (Directory, p 36).
Since the amount varies with your income, you are probably asking: whose income? Mine or my partner’s? For marriages before 5 December 2005, Married Couple’s Allowance is given initially to the husband to set against his income. For marriages and civil partnerships on or after that date, it goes to whichever of you has the higher income. But, in either case, you can arrange to transfer the whole allowance to the other person, agree to split it equally between you, or transfer any unused part.
Claim Married Couple’s Allowance through your tax return or by calling the HMRC general helpline, 0300 200 3300.
Tax relief on ‘outgoings’
Separate from any personal allowances, you can obtain tax relief on the following:
●● a donation to charity under the Gift Aid scheme or through a payroll giving scheme at work;
●● contributions to workplace pension schemes and personal pensions that you arrange yourself;
●● some maintenance payments, if you are divorced or separated and you or your partner were born before 6 April 1935;
●● for some older borrowers only, mortgage interest on a loan taken out to provide you with extra income.
DONATIONS TO CHARITY
You can get tax relief on a donation to charity if you make a Gift Aid decla-ration. Usually the charity provides you with a form to fill in to do this. Donating this way means that the charity can claim a top-up from HMRC equal to 25 per cent of whatever you give. For example, if you give £8, the charity gets £10 once the HMRC top-up is added on. The top-up the govern-ment gives to the charity is equivalent to giving you tax relief at the basic rate (20 per cent in 2023/24) on your donation.
If you are a higher-rate or additional-rate taxpayer, you can claim extra tax relief. To do this, you need to fill in a tax return or ask HMRC to adjust your tax code (see below for information about this). Beware of using Gift Aid if you are a non-taxpayer or pay very little tax. If you do not already pay at least as much tax as the top-up, HMRC can ask you to pay the difference.
Some employers run payroll giving schemes that let you make donations to charity direct from your pay. Your employer deducts the donations from your pay before working out how much tax to collect (through the PAYE system described later in this chapter). This means you automatically get tax relief up to your highest rate, and there is no need to fill in a tax return.
PENSION CONTRIBUTIONS
The tax rules surrounding pension contributions are quite complex, and you can read about them in Chapter 3.
MAINTENANCE PAYMENTS
In general, maintenance payments you receive are not taxable, and you cannot claim tax relief on any maintenance payments you make to a partner following separation, divorce or the dissolution of a civil partnership. An exception has been made in cases where one (or both) of the divorced or separated partners was born before 6 April 1935. Those paying mainte-nance are still able to claim tax relief, but only at a rate of 10 per cent and only on payments up to £4,010 (2023/24). This gives maximum tax relief of £401, which you get as a reduction in your tax bill. (However, your tax bill cannot be reduced to less than zero.)
TAX RELIEF ON MORTGAGE INTEREST
Mortgage interest relief was abolished on 6 April 2000. The only purpose for which relief is still available is in respect of loans secured on an older person’s home to purchase a life annuity (a home income scheme). However, to qualify, the loan must have been taken out (or at least processed and confirmed in writing) by 9 March 1999. Borrowers in this situation can continue to benefit from the relief for the duration of their loan. The relief applies to interest on only the first £30,000 of the loan, and is given at a rate of 10 per cent. You get the relief by making reduced payments to your lender, who then claims the relief back from HMRC.