State pensioners who have income under £50,270 urged to claim HMRC 'perk'

State pensioners can avoid paying HMRC tax on their State Pension with an underused perk. State pensioners can reduce their tax bill by as much as £252 by taking advantage of an often-overlooked HMRC perk, they have been reminded.

The personal allowance is the amount of income that you can have without paying any tax at all. Currently, it’s £12,570 for anyone who earns under £100,000 a year after pensions and other deductions. Anything someone earns above their personal allowance is taxed at their marginal rate, which is 20% on income between £12,571 and £50,270 and higher on earnings after that.

If you or your partner have an income of more than £50,270, you can’t take advantage of the marriage allowance perk. The Marriage Allowance allows a non-taxpayer to transfer £1,260 of their Personal Allowance if their spouse or civil partner is a basic rate taxpayer. This increases the spouse or civil partner’s Personal Allowance and reduces their taxable income.

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Probably the most obvious situation to think of is a married couple with one at home looking after children. However, it’s also important to think about clients who are retiring, or retired, and find themselves being a basic rate taxpayer with a spouse who is a non-taxpayer. This scenario is common as many higher rate taxpayers will try and manage their income, so they become basic rate taxpayers in retirement.

Currently if the non-taxpayer receives the full current State Pension of £10,636.60 per annum, and they transfer £1,260 to their basic rate taxpaying spouse or civil partner, this will still be within their personal allowance of £12,570 per annum. This saves the basic rate taxpayer £252 in tax and can be back-dated four years if applicable.

If you need any help, either with claiming the allowance or reporting a change of circumstances, you can ring the helpline on: 0300 200 3300.