Tax Relief for Maintenance Payments

 (for 1997 and subsequent years)

The Income Tax Law recognises "New Agreements", being orders/agreements made on or after 1st January, 1997 and "Existing Obligations", incurred under orders/agreements made by 31st December, 1996.

"New Agreements"

Maintenance payments (including alimony payments) made under a court order or legally binding written agreement (e.g.. deed of separation) are treated as follows for income tax purposes:

Payments must be made gross and the recipient will not be taxed on the payments. Payers will receive an allowance in their annual tax bill equal to the amount of the maintenance, up to a maximum of £2,600. This deduction will reduce the payer's income for the purpose of calculating entitlement to Marginal Relief and for many will be worth £2,600 x 27% = £702 a year in tax relief. A separate leaflet, titled "Jersey's Two-Tier System", is available explaining Marginal Relief.

In order to qualify for relief the maintenance payments must be:-

(a)   made by one party to a marriage (including a dissolved or annulled marriage) to or for the benefit of the former spouse or for the benefit, maintenance or education of a child for whom either party is, or has been, entitled to the income tax child allowance.

or

(b) from 1.1.2004, made by a parent to or for the benefit, maintenance or education of his or her illegitimate child.

Tax relief is available in respect of written agreements made under the law of Jersey and a member State of the European Communities or made by a Court in those jurisdictions.

Underneath is a flow-chart showing the scope of tax relief for maintenance payments made under ‘new agreements’

MaintenanceFlowchart.jpg

"Existing Obligations"

These include court orders, written agreements and oral/verbal agreements made on or before the 31st December, 1996 in respect of maintenance payments made by an individual for the maintenance and/or education of another. To qualify as an existing obligation written particulars of oral/verbal agreements must have been submitted to the Income Tax Office by 30th June 1997.

By concession tax relief is given on payments made under foreign court orders and written agreements executed abroad.

As of 1st January, 1998 maintenance payments are to be paid without deduction of Income Tax. Payers will receive tax relief in calculating their annual tax bill. Relief for all types of maintenance will be "capped" at the level payable in 1997. The assessment on the recipient will be similarly "capped".