Dad pays more if his wife re-weds: Legal quirk ends tax relief for divorced fathers who pay child support to ex-spouse

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The Independent Online
THOUSANDS of fathers who pay maintenance for their children are suffering financial injustice at the hands of the Inland Revenue by losing tax relief on the maintenance, only because their ex-wives have remarried.

John White of east London could not believe what happened to his tax bill when his ex-wife remarried. Mr White is a non-custodial parent of his six-year-old daughter.

Since his divorce in 1991, he has paid pounds 167 a month to his ex-wife on behalf of his daughter. The money is paid by direct debit into his ex-wife's bank account.

He said: 'These payments are maintenance payments for my daughter, not alimony for my wife.

'My ex-wife worked full time during our marriage, and the divorce order did not concern maintenance for her.'

If a husband pays maintenance for a child under a court order made since 1988, he gets tax relief if the payments are made to the wife for the benefit of the child. He does not get tax relief if the payments are made directly to the child.

A paying parent can claim tax relief each year on maintenance payments up to a certain limit - currently pounds 1,720, the same amount as the basic married couple's allowance.

For the tax year from 6 April 1994 to 5 April 1995, a paying parent can receive tax relief in the shape of an income tax reduction equal to 20 per cent of the payments made, up to the limit of pounds 1,720. This means that the amount of tax reduction is currently pounds 344.

Since 1991, Mr White had been paying the maintenance to his wife for his daughter's benefit under a court order, and was happily getting his tax relief with no problems at all.

He said: 'On my most recent tax return I was asked if my ex-wife had remarried. I replied, honestly, that she had.

'I have now been informed by my tax office that because my ex-wife decided to remarry I am no longer entitled to receive tax relief on my maintenance payments, even though these payments are made solely for the benefit of my daughter.

'To put it another way, my pay packet is lighter.'

Mr White was angered by the change. His maintenance payments had remained constant, his wife's new husband makes no financial contribution to the upkeep of the child, yet because his wife remarried he lost his tax relief.

Mr White's local MP expressed sympathy with his predicament and wrote to Kenneth Clarke, the Chancellor of the Exchequer, for an explanation.

Mr White has apparently fallen foul of a section in the Finance Act that says tax relief disappears on remarriage.

According to Mr Clarke, it is irrelevant that the maintenance is for the child and not for the newly married mother.

Mr Clarke's letter said: 'Our view is that there is no justification for giving tax relief to divorced or separated parents for the costs of maintaining their children when no tax relief is available to married couples bringing up children in a united family.'

But if Mr White's ex-wife and her new partner were still cohabiting, Mr White would still be entitled to his tax relief. Mr White said: 'I am tempted to increasethe maintenance payments . . . on the condition that she divorces her current husband and continues to live with him in a happy and loving relationship without the benefit of a piece of paper that says they are man and wife.

'I would rather that my money went to her than to the Inland Revenue.'

Pauline Walker, a matrimonial partner with solicitors Bailey Shaw & Gillet, said: 'Questions should be asked whether the Treasury is wrongly interpreting this section of the Act. The consequences of their action are so illogical as to defy belief.'

David Rothenberg, a partner with chartered accountants Blick Rothenberg, said: 'If a child spends a considerable amount of time - not merely short holidays - with the father, then he can claim the additional personal allowance, which is pounds 1,720.

'But even if he gets it, it will disappear if he remarries. It seems that every time the tax system touches upon marriage it throws up these glaring anomalies.'

The ruling applies not only to divorced fathers making payments under court orders but also to those who have been assessed for maintenance by the Child Support Agency.

However, these fathers may be relieved to know that as long as their ex-wives do not remarry they are entitled to tax relief on CSA assessments for payments due and made on or after 6 April 1993.

If you have made payments while waiting for your CSA assessment, these will qualify for tax relief only if they were under a legally binding written agreement.

Purely voluntary payments made previously will not qualify for tax relief.

(Photograph omitted)