Written Answers. - Tax Allowances.

Noel Ahern


150 Mr. N. Ahern asked the Minister for Finance the tax position in relation to a legally separated person in a second relationship with a non-working partner; if a legally separated person can claim for either, or both, a married person's tax allowance and tax relief on maintenance payments; if a legally separated person can claim a tax allowance in respect of a current partner; if a convenant or other procedure is allowed; and if he will make a statement on the matter. [16820/96]

Under section 3 of the Finance Act, 1983, payments made for the maintenance of a spouse are a deduction in computing the total income for tax purposes of the paying spouse and are therefore not liable for tax in the hands of that spouse. Instead the payments, which are payable gross, i.e. without deduction of tax, are liable to tax in the hands of the receiving spouse. Maintenance payments in respect of children are paid out of after tax income. Such payments are not taxable, therefore, in the hands of the children or the receiving spouse.

Alternatively, under section 4 of the Finance Act, 1983, separated couples, who both choose to do so, may opt to be treated as a married couple for income tax purposes. In this case, the paying spouse will pay the tax attributable to the maintenance payments and will, if the other spouse has no income, be granted the married allowance and the double rate bands. If the other spouse has other income such as a wage or salary, the tax assessed on the couple will then, under the mandatory separate assessment procedure, be apportioned between them so that the other spouse pays the tax appropriate to his/her other income but the tax referable to the maintenance payments will still be paid by the payer.

A legally separated person may not claim a tax allowance in respect of a current partner. In general, covenants are not tax effective. However, when the tax advantages of covenants generally were phased out in 1995, special provision was made for a small number of preexisting covenants to be allowed continue tax relief until 1998. These covenants are generally held by cohabiting couples rearing children.