Many separating spouses take legal but not financial advice. It is strongly recommended for both individuals to obtain financial advice regarding the separation.
Everything from life cover, income protection, critical illness cover, borrowings and pension plans should be reviewed. In the case of a temporary separation there will be no alteration in the income tax situation and you can still elect for joint, separate or single assessment. If the separation is considered to be permanent then the husband and wife will be assessed for income tax under the single assessment system.
Where the separation is likely to be permanent and if there are no legally enforceable maintenance payments, the spouses are assessed for Income Tax under Single Assessment. Any voluntary payments are ignored for tax purposes.
If the separation is likely to be permanent and if there are legally enforceable maintenance payments being made then the couple may opt for either single assessment. or if both spouses remain resident in Ireland, separate assessment.
If single assessment applies, maintenance payments made for the benefit of the spouse (but not the children) are tax-deductible for the taxpayer and are taxable in the hands of the recipient.
Under separate assessment, maintenance payments made for the benefit of a child are ignored for tax purposes. This means the payments are made without deduction of tax, the payments are not taxable, and the payments are not regarded as income of the child.
Capital Gains Tax
If the separation is likely to be permanent the spouses are treated as two unconnected persons for Capital Gains Tax (CGT) purposes and transfers between spouses are no longer exempt from CGT. However any transfer in consequence of the separation will not trigger a CGT liability. No transfer of unused CGT losses is permitted between spouses after the year of separation.
The contributory widower/surviving civil partners pension is payable to the widow/ surviving civil partner for as long as the widower/surviving civil partner does not remarry and does not cohabit with anyone else.
The Year of Separation
The married tax credit and double rate tax band can be claimed for the year of separation by the assessable spouse provided the separation does not occur on the first day of that tax year, or the non-assessable spouse has not submitted a claim for single assessment prior to separation.
The assessable spouse is liable to income tax for the tax year of separation on their own income under joint assessment if they were previously taxed jointly for the full year, and on the other spouse’s income up to the date of the separation.
A tax deduction will be available for legally enforceable maintenance payments made for the benefit of the spouse (but not for the children). If you are legally separated and you receive maintenance payments from your spouse, PRSI will be payable on the maintenance received if you are taxed as a single person.
If you have opted for separate assessment, maintenance payments are ignored for income tax purposes and PRSI is not payable on the maintenance. The PRSI Class would be the S1 rate.
The marriage tax credit can be claimed by you under single assessment if your spouse is wholly or mainly maintained by you. You are not entitled to deduct the maintenance payments if these are voluntary payments and are not legally enforceable.
Only legally enforceable maintenance payments are tax-deductible.
Different rules apply where cohabitating partners are separating.
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