Your money - 6 June 2012

Q. I am in the process of separating from my spouse and am wondering do I need to advise Revenue of this immediately and what are the consequences?

A. Yes. You should let your tax office know as soon as possible after you separate so that any necessary adjustments to your tax position can be made.  You should state the date of separation and give details of any financial arrangements entered into i.e. maintenance payments to your spouse/child (ren), maintenance payments received by you, mortgage payments etc.  You should also forward a copy of any documents governing the separation i.e. deed of separation, court order or maintenance agreement.

Where a couple separate during a tax year and the separation is likely to be permanent they will be taxed as follows:

Joint Assessment prior to Separation

The assessable spouse, i.e. the person who is chargeable to tax on the couple’s joint income will be:

• Entitled to married person’s allowance and married rate band for the full year

• Taxed on his/her own income for the full year and the other spouse’s income from 1 January to the date of separation.

The other spouse will be:

• Taxed on his/her own income from the date of separation to the following 1 January

• Entitled to single person’s tax credit and single rate band.

Separate Assessment prior to Separation

Where Separate Assessment applied prior to separation, the spouses will be entitled to transfer unused tax credits and rate bands to each other up to the date of separation only.

Assessment as Single Persons prior to Separation

Where Single Treatment applied prior to separation there is no change of treatment after separation, each spouse continues to be taxed as a single person.

The effect of separation on each spouse’s tax liability depends mainly on whether there are any maintenance payments involved, and, if so, whether such payments are made under a legally enforceable arrangement or not.

Where a couple separate and no maintenance payments are made, each spouse will be taxed as a single persona and will be responsible for filing his/her own tax return and paying tax on his/her own income.

Voluntary payments (i.e. payments that are not legally enforceable) are not taken into account when calculating either spouse’s tax i.e.:

• The spouse who makes the payments is not entitled to a tax deduction for them

• The spouse who receives the payments is not taxed on them

• Both spouses are taxed on their own income as single persons.

Maintenance payments made under a legally enforceable arrangement entered into on or after 8 June 1983 are payable without deduction of tax.  The following rules apply to payments made for the benefit of a spouse:

• The payments are made without deduction of tax

• The spouse who makes the payments is entitled to a tax deduction for them

• The spouse who receives the maintenance is taxable on the payments

• Both spouses are taxed as single persons (unless they opt to be taxed as a married couple).

A separated couple can opt to be treated as a married couple for income tax purposes if:

• They are both resident in the State and

• Maintenance payments are made under a legally enforceable arrangement.

The couple must submit a joint election if they wish to avail of this option.  The election must be made in writing before the end of the tax year and must be signed by both parties.  If such an election is made the maintenance payments are ignored i.e. the spouse making the payments does not get a tax deduction for them and the spouse who receives the payments is not taxable on them.

Maintenance payments made for the benefit of a child(ren) are ignored for tax purposes.

If you are in receipt of maintenance payments and you also have income which is subject to PAYE, it may be possible to collect some or all of the tax due on the maintenance by reducing your tax-free allowances.  This can be done by declaring the amount of Maintenance Payments received on the PAYE Anytime service.

If you are in receipt of maintenance payments only, the tax due is payable directly in one lump sum under self-assessment procedures. In calculating your finances you should take into account the payment of any tax due and the fact that this amount may have to be paid in one lump sum.

As this can be a difficult area and there may be other financial factors involved, you should consider getting some advice before proceeding.

Q. My spouse is severely disabled and we intend to obtain some equipment including a car to help with mobility, etc.  Can you advise if we would be entitled to reclaim the VAT or vehicle registration tax?

A. Repayment may be claimed of VAT paid in relation to vehicles (a) for use by severely and permanently disabled persons as drivers or passengers and (b) for use by organisations for the transport of severely and permanently disabled persons.  There is also some provision for the repayment of, and in certain circumstances, the remission of Vehicle Registration Tax. Application forms and public notices are available from the Central Repayments Office, Disabled Drivers Section, Office of the Revenue Commissioners, M: TEK 11 Building, Armagh Road, Co. Monaghan. (Tel:  047-62100)

The tax relief for vehicles purchased for use by People with Disabilities Scheme provides for a range of tax reliefs in connection with the purchase and use of motor vehicles.

The main provisions of the scheme can be summarised as follows:

The scheme is open to personal who meet the specified medical criteria and have obtained a Primary Medical Certificate to that effect.  They can apply for relief as either a driver with disability or a passenger with a disability.  Alternatively, there is provision for a family member of a passenger with a disability to apply.  

Relief in respect of Vehicle Registration Tax (VRT) and Value Added Tax (VAT) can be obtained, subject to a maximum of:

• €9,525 for a driver with a disability

• €15,875 for a passenger with a disability

• €15,875for a family member with a disability.

Relief is restricted to a vehicle which needs to be specially constructed or adapted for use by a person with a disability and which has an engine size up to 2,000cc in the case of a driver with a disability and up to 4,000cc in the case of a passage with a disability.

A vehicle which has been relieved from tax may not be disposed of for at least two years from the date of a valid claim.

A person admitted to the Scheme may also apply for a repayment of excise duty on fuel used in the vehicle, for the transport of the person with the disability, up to a maximum of 2,728 litres per twelve month period.

A vehicle which has been admitted to the Scheme is also exempt from the payment of annual motor tax.

Repayment may also be claimed by disabled persons of the VAT paid on certain special aids and appliances.  The relief is also available in certain circumstances to persons other than disabled persons who purchase such goods for handling over to a particular disabled person.

All enquiries relating to repayments to unregistered persons should be made to the VAT Unregistered Repayments, 3rd Floor, River House, Charlotte Quay, Limerick (Tel:  061-212799, LoCall: 1890 25 24 49).

For further information, please go to the Revenue’s website at www.revenue.ie.

If you have any queries on money or taxation matters which you would like answered, please send them to "Your Money", c/o Examiner Publications (Cork) Ltd., City Quarters, Lapps Quay, Cork