Some pensioners who have shared part of their income tax benefit with their spouse could face unexpected tax bills as a result of the frozen income tax benefit, a former pensions minister has warned.
Marriage allowance applies in cases where one person in a couple pays basic tax and the other is a non-taxpayer.
To benefit as a couple, the person with the lower income must normally have an income below the tax-free personal allowance – this is usually £12,570.
Former pensions minister Sir Steve Webb highlighted government figures showing around 2.1 million couples benefited from marriage benefit in 2020/21. He said just over one in three of them are estimated to be retired couples.
In many cases, the husband will be a taxpayer and the wife will have the lower income and be a non-taxpayer.
The non-taxpayer can transfer 10% of his personal allowance to his spouse.
As long as the non-taxable exceeds 10% below the tax threshold, it is not subject to tax.
The couple's taxpayer benefits by saving on taxes, which can make couples better off overall.
Sir Steve warned that big cash increases in the value of the state pension, combined with the tax cap freeze, could push more women who currently pay no tax over the 90% threshold.
The tax could be collected through a tax claim at the post office after the end of the financial year.
Sir Steve, who is now a partner at consultants LCP (Lane Clark & Peacock), said: “This is yet another unwanted by-product of the year-on-year freeze in the value of the tax exemption.
“Hundreds of thousands of women have signed away part of their tax free to reduce their husband's tax.
“But as the State Pension increases, many of these women may now find they end up with an unexpected tax bill.
“We could see the marriage benefit go to waste as hundreds of thousands of couples have to decide whether to continue with this arrangement or scrap it, to avoid low-income pensioners being dragged through the tax net. The sooner the freeze on tax credits ends, the better.”
A Treasury spokesman said: “Pensioners whose only income is the new state pension and who have not deferred or are receiving protected payments pay no income tax and this year we have offered the biggest cash increase ever to pension payments, a 10.1% increase .
“Our tax burden remains lower than any major European economy – and by raising personal thresholds over the last decade we have removed three million people from paying tax overall. The best tax cut we can offer right now is to cut inflation in half, which we're on track to do this year as long as we stick to our plan.”