The marriage allowance is not a separate allowance; it is a reallocation of 10% of the personnel allowance from one person in a marriage (or civil partnership) to the other person. It can only be claimed where the individuals either pay no tax at all, or pay tax at a rate of no more than 20%.
HMRC say that to benefit from the marriage allowance the person completing the transfer must have total income of no more than the personnel allowance plus savings covered by the savings rate band (£5000). This condition is not in the legislation, but it has been coded into the HMRC computer.
The person completing the transfer of the allowance has their personal allowance reduced by £1,060 for 2015/16 (£1,100 for 2016/17). This should have no effect on their tax position if they have ‘spare’ allowance of at least £1,100 to surrender. However, if the tax payers income is greater than the personal allowance due to dividend income, rather than savings income, an unexpected tax charge may occur.
This is because the HMRC computer applies the marriage allowance by giving a tax reduction of £212 (20% x £1,060). Where the claim is made after the tax year end, this adjustment should be shown as a tax reduction on form SA302 or on the P800 for the year. However, in some cases the HMRC computer adds £212 to the recipient’s tax calculation for 2015/16. The only way to resolve this error is to contact HMRC and ask for the taxpayers assessment to be adjusted.
Where the claim for the marriage allowance is made after the end of the tax year, (say on the 2015/2016 tax return) the claim is valid only for that year. The payments on account for 2016/17 should not be affected.
However, that is not how HMRC has interpreted the law. and how it has instructed the software providers to produce computations. If a claim for the marriage allowance was made for 2015/16, most (but not all) tax software has reduced the payments on account for the recipient of the allowance for 2016/17 by £220 (20% of £1100).