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What are we each entitled to in our divorce settlement?

What does the law say about how to split the house, how to share pensions and other assets, and how much maintenance is payable.

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Are CM and SM tax deductable

  • ark13112003
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23 Nov 07 #7510 by ark13112003
Topic started by ark13112003
There's a thought in the back of my mind that child maintenance and spousal maintenance are tax deductable. Is this true? The financial agreement will be written up by the solicitors and when the divorce goes through, it will go via the court (I think!)

I live in Scotland if this makes a difference.

Any thoughts on this, or am I just being hopeful?

Ark

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23 Nov 07 #7517 by LittleMrMike
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I'm afraid you're being hopeful.

It used to be the case until 1997 when Gordon Brown virtually abolished tax relief on maintenance payments, even those which, like mine, had been calculated and worked out on the assumption that the payer would get tax relief and the payee would have to pay tax.

The number of people affected by the change was not great, but the effect could be devastating, particularly for high earners who were making substantial maintenance payments for school fees and getting relief at the top rate of tax. At a stroke of the pen all that was wiped out. It was done so furtively that even my local Inland Revenue office didn't know.

These days the practice is that the Court will take into account your earnings after payment of tax and NI.

Mike 100468

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23 Nov 07 #7525 by ark13112003
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Mike,

Thanks for that. I just remembered something on my tax declaration which was about maintenance payments. it would have been nice as I'm a higher rate tax payer and I will be paying substantial amounts in maintenance to my wife and kids.

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23 Nov 07 #7532 by LittleMrMike
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If I am not much mistaken, and if my memory serves me correctly, the tax relief on maintenance payments was preserved, as a temporary measure, for those who were over pensionable age at the time the ' reform ' took effect ( as the married couple's allowance was ) but for those who were under pensionable age, as I then was, the relief was abolished totally, and you didn't qualify for it on reaching age 65/60. That may be the reason why it's still on the tax form, although the number of people affected by it must be dwindling with every year that passes. Even before Gordon Brown, the Conservatives, through Norman Lamont and Ken Clarke, had been nibbling away at it by reducing the relief by 5% a year. I would have thought the explanatory notes would set out the present position.

Of course, all this was a tax increase through the back door, on the basis that payers of maintenance were, like yourself, and like I used to be before retirement, paying tax at higher rates, whereas most recipients would be paying at the standard rate or even less.

I do not regard the position as conceptually or philosophically satisfactory at all. For example, in my own case, my gross income would exclude me from age related tax reliefs, but ' the system ' completely ignores the maintenance I have to pay to my ex and treats me for tax purposes as though I still had it. If
I were assessed on what I have left I'd get the age related reliefs.

Here endeth the rant. I never had a high opinion of HM Treasury to start with ; after this week's disclosures I think it might be time to bring me out of retirement.
I could hardly do worse.

Mike

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23 Nov 07 #7533 by ark13112003
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Mike,

Thanks for that. I just remembered something on my tax declaration which was about maintenance payments. it would have been nice as I'm a higher rate tax payer and I will be paying substantial amounts in maintenance to my wife and kids.

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23 Nov 07 #7542 by sexysadie
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CSA payments are worked out as a percentage of income after some deductions, including tax, so the net effect is that there is tax relief on them.

Sadie

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