The Gazette 1983

GAZETTE

JANUARY/FEBRUARY 1983

2. where he is not living with his wife but she is wholly or mainly maintained by him and he is not entitled to write-off any maintenance for tax purposes. (See Sections 138 and 192/195, Income Tax Act 1967.) The usual situation in which a husband who is separated will be granted the marriage allowance is where he is making payments under a maintenance order and these payments are his wife's main means of support. Where the maintenance payments are only a small part of the wife's income or where the husband is allowed a tax deduction for payments under a maintenance agreement he will only rank for the single allowance. The marriage allowance is £2,900 for 1982/83 and the single allowance £1,450. Section 192 of the Income Tax Act 1967 treats a wife as living with her husband unless: (a) they are separated under an Order of a Court of competent jurisdiction, or (b) they are separated pursuant to a Deed of Separation, or (c) they are in fact separated in such circumstances that the separation is likely to be permanent. Rates of Taxes: In accordance with Section 8 of the Finance Act 1980 a separated couple are both taxable at the single rates. This arises by virtue of the fact that only those taxable in accordance with Section 194 of the Income Tax Act 1967 are entitled to the "Double" rate bands and to be taxable under Section 194 a husband and wife must be living together. Child Allowance: Section 141 of the Income Tax Act 1967 entitles a taxpayer to an allowance for each child living with him/her at any time during the year of assessment. Where two persons claim for the same child the allowance shall be granted in the proportion that they maintain the child. Maintenance payments that are allowed for tax purposes are not taken into account. The child allowance for 1982/83 is £100. Single Parent Allowance: Under Section 138A Income Tax Act 1967 a separated taxpayer, entitled to the child allowance, will also be entitled to a Single Parent Allowance. The Single Parent Allowance is £1,450 for 1982/83. Capital Gains Tax: No Capital Cains Tax arises on transfers between spouses provided they are living together. (Section 13 (5) Capital Gains Tax Act 1976.) The term "living together" is defined in Section 192 Income Tax Act 1967 (above). This can cause problems in practice as a couple will in most cases have separated at the time assets are transferred between them, and a Capital Gains Tax liability may arise for the transferor. It should also be noted that to get the full exemption on the sale of a private residence under Section 25 of the Capital Gains Tax Act 1975 the seller must have resided in the residence for the full 17

provision is present, the draft agreement could be submitted to the Revenue for confirmation that the provision will be effective for tax purposes. Separation Agreement made a Rule of Court: In a case where a Separation Agreement is made a Rule of Court, other than by reference to the Family Law (Maintenance of Spouses and Children) Act 1976 ("the 1976 Act"), the tax treatment is not altered and is as described above. Where, under Section 8 of the 1976 Act, a Separation Agreement is made a Rule of Court the tax treatment is the same as where maintenance is determined by the Court, viz: 1. The payment shall be made without deduction of Income Tax (Section 24) of the 1976 Act). 2. The payment is not deductible for tax purposes against the payer's income. 3. The recipient is not taxable on the amount received. For example, if A agreed to pay Mrs. A £10,000 per annum for the rest of her life under the terms of a Separation Agreement without mention of tax the position is as outlined above, viz: 1. A pays £6,500 to Mrs. A. 2. A pays £3,500 to the Revenue Commissioners. 3. A writes £10,000 against his taxable income (thereby bringing his taxable income, upon which his income tax liability is calculated, to a much lower figure with resultant saving in actual tax payable). 4. Mrs. A is taxable on £10,000 less allowances, etc. 5. Mrs. A is entitled to a deduction of £3,500 from her tax liability. If Mrs. A applied and was successful in having the maintenance agreement made a Rule of Court under Section 8 of the 1976 Act the position would change to the following: 1. A pays Mrs. A £10,000. 2. A makes no deduction or payment to the Revenue Commissioners. 3. A is not allowed write-off the payment against his taxable income. 4. Mrs. A is not taxable on the £10,000 received. Clearly in these circumstances A might have to apply to the Court pursuant to Section 6 of the 1976 Act for a variation downwards of his maintenance obligation, which application should be presented on the basis of A's net (after tax) income. Maintenance Orders: Where the Court makes a maintenance order under Section 5 of the 1976 Act the tax treatment is that as described for maintenance agreements which have been made a Rule of Court under Section 8 of the 1976 Act (see Brolly v. Brolly [1939] I.R., 562). Personal Allowance: There are two circumstances in which a man is entitled to a marriage allowance: 1. Where he is living with his wife and he is assessed to tax on her income as well as his own, or