Married couple's guide to splitting the tax allowance: Wives on the higher rate stand to benefit from the imminent changes. Maria Scott reports

MARRIED couples should act now to make the most of next year's married couple's tax allowance.

Among households most likely to benefit are those where the wife is a higher-rate taxpayer, according to Madelene Blake, a manager in the personal financial planning division of the accountants Coopers & Lybrand.

At present the married couple's allowance, worth pounds 1,720 in the current tax year, goes automatically to husbands. Husbands on low incomes can pass any part of the allowance they do not use on to their wives.

In households where the wife is a higher-rate taxpayer and the husband a lower-rate payer, it is not possible to transfer the pounds 1,720 allowance from the husband to wife in order to reduce the household's overall tax bill.

From 6 April the man can use it all, the wife can use it all or the couple can divide it in half. If the couple do not reach an agreement, the wife has a right to claim half the allowance - pounds 860. This is worth pounds 215 for a basic-rate payer and pounds 344 for higher-rate taxpayers.

Couples on the same tax band will not alter their total tax bill by splitting the allowance, but the wife will be better off.

The Inland Revenue believes that about 40,000 couples may benefit by transferring the allowance to a wife paying the higher rate.

But couples must make it clear to the Revenue how they want to divide the allowance. If they make no request, the allowance will still go to the husband. Couples must make their election on a Form 18, available from tax offices. This should be submitted to a tax inspector by 5 April. Couples who are running late have until 5 May to submit the form, although they must notify the Inland Revenue in writing by 5 April of their intention to make an election.

Mrs Blake said that apart from households with a high-earning wife, other couples who stand to gain are those where the wife is paying tax monthly through the pay-as-you-earn system and the husband is self-employed. Here, the husband will be paying tax twice a year, on 1 January and 1 July. If he is receiving all the married couple's allowance the household will have to wait until these dates to receive the benefit of the allowance whereas, if the wife were to be credited with it, she would start benefiting from the first pay date in the tax year.

'This gives the couple a cash-flow benefit,' Ms Blake explained.

A group of married couples hope this year's Budget might correct an anomaly that they say leaves them with unfair tax bills. The problem affects couples where the man is drawing a state pension and claiming a dependent's benefit on behalf of a younger wife. Where the wife is aged under 60 the benefit is taxed with her husband's income. She cannot set the benefit against her own personal allowance so if she is a non-taxpayer, but her husband is a taxpayer, the couple could end up paying hundreds of pounds of tax.