Key Post Tax planning for separating couples

Mrs Vimes

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Revenue leaflet IT3

A separating couple need to calculate their tax liability in the various possible situations to see whether they can lower their overall tax bill by
a. making maintenance legally enforceable
b. opting to be taxed as a married couple
c. keeping maintenance voluntary and setting the level such that it is higher than Fran's income so that they can get married plus single credits.


Take a separating couple, Ger and Fran. They separate in 2010.

Case A
Ger is working and is the assessable spouse. It doesn't make a difference whether they are assessed under joint or separate assessment.
Fran is not working.
Ger is paying legally enforceable maintenance.

In 2010:
Ger is taxed as married in the usual fashion but with a tax deduction for the maintenance paid.
Fran is taxed on the maintenance and gets a single person's tax credit and rateband.

In 2011 and subsequent:
Ger and Fran are both taxed as single persons with Ger claiming a deduction for maintenance and Fran paying tax (under self-assessment) on the maintenance.
Alternatively, they can choose (jointly and in writing) to be taxed as a married couple and ignore maintenance payments.
If there are children they may be better off by being taxed as single persons and one or both would be entitled to one parent family credit.

Case B
Ger is working and is the assessable spouse. It doesn't make a difference whether they are assessed under joint or separate assessment.
Fran is not working.
Ger is paying voluntary maintenance.

In 2010:
Ger is taxed as married in the usual fashion without a tax deduction for the maintenance paid.
Fran is not taxed on the maintenance.

In 2011 and subsequent:
Ger can claim married credit but single rateband:
if the voluntary payments are sufficient to wholly or mainly maintain the spouse, the payer will be entitled to claim the married persons tax credit. However, only single persons standard rate cut-off point is due. The spouse receiving the payments can also claim single person's tax credit against his/her income (if any)
Maintenance is ignored for taxation purposes.
In this case if there are children Ger would be better off if eligible to claim one parent family credit (due to increased rateband).

Case C
Ger is working and is the assessable spouse. It doesn't make a difference whether they are assessed under joint or separate assessment.
Fran is also working.
Ger is paying legally enforceable maintenance.

In 2010:
Ger is taxed as married in the usual fashion including on Fran's income up to date of separation but with a tax deduction for the maintenance paid.
Fran is taxed on their own income from the date of separation and also on the maintenance and gets a single person's tax credit and rateband.

In 2011 and subsequent:
Ger and Fran are both taxed as single persons with Ger claiming a deduction for maintenance and Fran paying tax (under self-assessment or by reduction of tax credits) on the maintenance.
Alternatively, they can choose (jointly and in writing) to be taxed as a married couple and ignore maintenance payments. In this case separate assessment will apply and both spouses will be balanced after year end with any transfer of rateband/credits taking place then.
If there are children they may be better off by being taxed as single persons and one or both would be entitled to one parent family credit.

Case D
Ger is working and is the assessable spouse. It doesn't make a difference whether they are assessed under joint or separate assessment.
Fran is also working.
Ger is paying voluntary maintenance.

In 2010:
Ger is taxed as married in the usual fashion including on Fran's income up to date of separation.
Fran is taxed on their own income from the date of separation and gets a single person's tax credit and rateband.
Maintenance is ignored for taxation purposes.

In 2011 and subsequent:
Each spouse is taxed as a single person and maintenance payments are ignored.
If the maintenance that Ger is paying is higher than Fran's earnings then Ger can claim married credit but single rateband and Fran also gets single credit as per quote above in Case B.
Maintenance is ignored for taxation purposes.
As always, if there are children they may be better off by being taxed as single persons and one or both would be entitled to one parent family credit.


Notes:
1. Maintenance paid in respect of children is always ignored for taxation purposes whether legally enforceable or voluntary.
2. I have only done cases where the assessable spouse is the one paying the maintenance but of course it could be the non-assessable spouse just as easily. Maintenance is still deductible for payer and taxable for payee.
3. PRSI is also due on maintenance received and deductible on maintenance paid.
 
Separating tax -can you be jointly assessed and claim one parent tax credit .

Would value your views on this scenario
Ger is working (earns 35k paye with possibility of commission earnings). He is paying voluntary maintenance to Fran for their 2 children.(12K)
Fran is working too and earns (30K self employed and 20K paye).
Ger is the assessable partner and at time of separation had higher proportion of their joint tax credit allowance.
Should Fran:
Seek to be assessed on a single basis?
Continue joint assessment but negotiate for equal share of tax credits?
Can Fran claim one parent family credit if she continues to be jointly assessed with Ger.
 
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