Are You Eligible For A Tax Windfall?

If the current cost of living challenges mean you’re spending more than you earn each month, it’s possible that you’ve got more credit card debt than you’re comfortable with, and you could be bracing yourself for a large bill.

Help could be at hand, however, as you may be due a windfall from HMRC.

Married couples and civil partners

If you’re married or have a civil partner, you may be eligible for a tax refund of up to £1,256. You need to have been born after 6 April 1935, with one of you having an income of less than the Personal Allowance of £12,570 and the other with between this amount and £50,270 (£43,662 in Scotland).

The Marriage Allowance was introduced in 2015 and allows the lower earner to transfer 10% of their Personal Allowance to their spouse/civil partner, which increases the amount they can earn tax-free. The MoneySavingExpert consumer website suggests that around 2.1 million couples who are eligible for this tax break are missing out on it.

In the 2023/24 tax year, this is worth £252. It can be backdated for up to four years and could be worth a total of £1,256 if all four years are now claimed. Those eligible in 2019/20 have until 5 April 2024 to claim for this tax year. If a spouse has died since 2019 and would have been eligible, a claim can also be made on their behalf.

To claim, visit http://www.gov.uk/marriage-allowance  or call the HMRC helpline on 0300 200 3300. The spouse/civil partner with the lower income needs to claim and will need their National Insurance number, proof of identity, and personal bank details if a repayment is to be made into a bank account. For future years, the higher earner's tax code will be adjusted so that their take-home pay will rise in line with increases in the tax-free allowance.

Over age 88?

Couples, where one of you was born before 6 April 1935, may be better off claiming the Married Couple’s Allowance, which is worth between £364 and £941.50 each year for those who are eligible.

You can find more details on the government website, including the eligibility criteria and how to claim.

Pension tax relief and Gift Aid

If you have paid into a personal pension, stakeholder pension, or SIPP (self-invested personal pension) through a payment from your bank account and are a higher- or additional-rate taxpayer, with taxable income in excess of £50,270 (£43,662 in Scotland) you may be eligible for some additional tax relief.

Pension providers usually grant basic-rate relief of 20% at source and add this to your pension payment, so every £8 you pay in becomes £10 invested in your plan. If you are a 40% (41% in Scotland) or 45% (46% in Scotland) taxpayer, personal pension contributions qualify for tax relief at the highest rate you pay. A claim can be backdated for four years.

Additional-rate tax relief is also available for charitable donations made under the Gift Aid scheme.

To claim, you need to file a self-assessment tax return or contact your tax office with details of the amounts paid, the contract number, and the tax year in which the payments were made.

Pension Freedoms withdrawals

If you are age 55 or over, you can make flexible withdrawals from personal pension plans. If these exceed the tax-free lump sum, usually up to 25% of the fund, the pension provider deducts tax at source on the extra. They are required by HMRC to apply an emergency code. If you have made no subsequent withdrawals, nor filed a self-assessment tax return in the meantime, you could be due a substantial refund. Claims for overpaid tax can be backdated for up to four years.

PensionsAge report that, in 2022, HMRC refunded up to £134 million to people who overpaid tax when they flexibly accessed their pension.

It’s likely that many taxpayers withdrawing more than the tax-free amount may still be due a refund. 

Check your tax code

If you are paid under PAYE, you should not assume that the tax code used by your employer to deduct tax from your pay is correct.

This is because it is based on the information HMRC hold about your income and the allowances you are eligible for, and employers have to use the code HMRC gives them.

Changes in circumstances such as changing jobs, receiving a pay rise or bonus, starting to draw a pension, or cashing in savings and investments can affect the tax you owe. If the wrong tax code is applied, you may have underpaid or overpaid tax.

Check your payslip and question HMRC about any code that does not look right.

Get in touch 

If you need help or advice regarding any of the tax issues you’ve read about here or would like to review your long-term financial plan, please get in touch.

Email info@lebc-aspira.com or call us on 0800 055 6585.

Please note

The information contained in this article is based on the opinion of Aspira and does not constitute financial advice or a recommendation to any investment or retirement strategy.