Clarke deals new blow to maintenance tax relief: The Chancellor has attacked an anomaly, reports Sue Fieldman

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The Independent Online
Divorcees who pay maintenance have little to cheer in the Budget.

Tax relief on maintenance payments is being reduced and it seems that soon it will disappear altogether.

It is given on payments made under a legal obligation.

In the good old days - before 15 March 1988 - payments made under a court order attracted relief at the payer's highest rate of tax.

Since then the relief has gradually been whittled away.

For orders made after March 1988 relief is limited to the level of the married couple's allowance - currently pounds 1,720. But it is deductible at the payer's highest rate of income tax.

Norman Lamont struck another blow to the relief in the March Budget. He restricted relief for the married couple's allowance and the other allowances linked to it to the lower rate band of 20 per cent.

Therefore, with effect from April 1994, the first pounds 1,720 of maintenance payments will qualify for income tax relief, but only at the lower rate.

Kenneth Clarke has now decided to cut the relief even further. From April 1995 the relief is restricted to 15 per cent.

Michael Norrie, of the chartered accountants Norrie Stokes and Perrett, says: 'The Chancellors seem to have got into the habit of giving the bad news early, perhaps in the hope that we will forget it when the time actually arises.

'But taxpayers who have previously been able to claim up to their marginal rate of tax of 40 per cent will be pounds 344 worse off next year and pounds 430 worse off from 5 April 1995.

'The basic rate taxpayer will be worse off by pounds 86 next year and pounds 172 the following year.'

For people with agreements made before 15 March 1988 the relief on the first pounds 1,720 will also be restricted to 15 per cent. Any payments between pounds 1,720 and the payment level in 1988- 89 will continue to qualify for relief at the marginal rate.

Parents who pay maintenance are often supporting two families.

Margaret Bennett, a matrimonial solicitor, says: 'It looks as if divorced families are being made to pay the penalty of being divorced.

'The Government's idea of family values seems to be that if we make it so expensive for the divorced they will all get back together again.'

However, not all matrimonial lawyers feel that the divorced should be treated differently from everyone else.

Peter Grose-Hodge, matrimonial partner with the solicitors Druces and Atlee, says: 'Tax relief on maintenance is an anomaly and as soon as it is out of the way the better.'

Adrian Groves is divorced. He and his second wife Claire have a daughter. He also pays maintenance of pounds 200 a month for his son from his first marriage.

The maintenance is paid under a court order. Mr Groves says: 'The tax relief is not a huge amount, but reducing it nibbles away at what you end up with in your pocket.

'If you are honestly paying maintenance and trying to do the right thing it reduces the incentive to pay even further.'

(Photograph omitted)

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