TaxPersonal TaxTaxation – Rules ‘may change’

Taxation - Rules 'may change'

The Treasury has issued an open-ended warning to taxpayers not to assume tax rules on which they base commitments will remain unchanged, write our parliamentary staff.

Paymaster General Dawn Primarolo said: ‘Anyone who sets up along-term arrangement with tax implications needs to bear in mind the fact that income tax rules may not stay the same.’

The ruling provoked Tory accountant MP Nick Gibb to accuse her of creating ‘injustice and chaos’ over maintenance payments under court orders.

The row erupted in the Finance Bill Committee after Primarolo refused to reconsider scrapping all relief for maintenance payments fixed on the understanding that tax relief would be available. The decision catches the more limited relief available pre-Budget and the more generous pre-1988 ‘old rules’ relief.

‘This is not a revenue issue. A husband used to get a full tax deduction at his marginal rate on full maintenance payments minus £1,900 while his ex-spouse was taxable on the full amount over £1,900,’ said Gibbs. ‘The government is reversing that. A husband will not get a tax deduction and his ex-wife will not be taxable.’

Shadow chief secretary David Heathcoat-Amory said husbands could not adjust their payments without obtaining a variation order from a court.

But Primarolo said individuals could change arrangements without a rush to the courts.

She said those receiving the more generous relief available for settlements made before March 1988 would have ‘enjoyed’ their favourable position for more than 12 years and it would ‘not be right’ to give them generous relief while abolishing it for everyone else.

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