In our blog last week, we met Sharon Stone and looked at the options she has to exit her business. In case you missed it you can read here. This week we are changing tack a bit and talking about marriage breakup – this blog explains the tax Implications of separation and highlights things to think about when doing through a divorce. The idea for this came from a recent tax appeals case. We will look at
- Introducing the Roses
- The facts and what’s at stake
- The evidence
- Revenue view
- TAC ruling
Introducing the Roses
Oliver and Barbara Rose are a married couple, but things haven’t been going well for a few years. Things came to a head in 2007 and Oliver moved out of the matrimonial home and went to live in another property. The core issue, in this case, is whether Oliver is entitled to be jointly assessed with Barbara. If he is successful then it means he would get a higher level of tax credits, being the married tax credit. Plus, he can get the more beneficial tax rate bands that apply to married persons and civil partners.
The appeal related to the tax years 2012 to 2016 and the tax at stake, plus interest and penalties, is €21,872. How this works is that Oliver files his tax returns and claims the married tax credit and rate bands. Revenue became aware of the change in circumstances and issue amended assessments that are different to the returns filed. This results in the liability, and this is what Oliver is appealing.
Oliver and Barbara were married for 33 years. Oliver got the married tax credit and married tax rate bands as he was jointly assessed with Barbara. Olive and Barbara divorced in 2017 and Oliver informed Revenue of this fact. Revenue amended Oliver’s tax returns for 2012 to 2016. This was on the basis that he wasn’t entitled to the married tax credit and rate bands. He wasn’t entitled because he was separated, and the separation was likely to be permanent.
Oliver disputes the Revenue view. He contends that his separation was not permanent until his divorce in 2017. And if not then he states the separation was permanent in October 2016, when he applied for divorce. As a result, he would get the married tax credit and married tax rate bands for all the years in question.
In June 2017 Oliver contacted Revenue by phone to tell them of his change in circumstances. In July 2017 Oliver submitted tax returns for the tax years 2012 to 2016. On the question of his civil status, he confirmed that he was “married but living apart”. He also confirmed that he was “wholly or mainly maintaining his spouse”. In all the tax returns he indicated that joint assessment was applicable. In August 2017 Revenue wrote to him disallowing the married tax credit and married rate band. Their letter stated “I have processed your returns allowing you single person’s tax credit and single person’s rate band”
Needless to say, with the tax liabilities that arose for those years Oliver wasn’t happy. He wrote to Revenue to appeal, and they said that he should appeal to the Tax Appeals Commissioners [TAC]. He appealed to the TAC because Revenue have “mistakenly treated us as being legally separated when we were not”
Oliver made some submissions to the TAC. He claimed that he is entitled to pay tax under joint assessment as he or Barbara didn’t elect otherwise. He also submits that per the tax law, where the wife is living with the husband, he is entitled to joint assessment.
In witness testimony, under oath, Oliver said that Barbara lived in Location A house, while he lived in Location B apartment. This apartment was an investment property that he bought in 2007. He said he worked in Location B during the week and returned to Location A at weekends. Oliver said this was a normal family, he went shopping with Barbara most weekends. Family holidays were abroad and the last one was at the end of 2015 with their adult son. He and Barbara visited family and friends together. The Location A property was in both names.
Revenue confirmed that under divorce law you must be living apart for 4 years before a divorce. Oliver said that he wasn’t permanently living apart until October 2016, at the earliest. Revenue asked Oliver if he claimed Tax relief at source [TRS] on the Location B property. TRS is not available on investment properties, but it is on your principal private residence [ppr]. It turned out that Oliver claimed this from 2009. Revenue further asked if Oliver paid Non-PPR tax on the Location B apartment. This was a tax due from 2009 to 2013 on a residential property that was not your own home.
Revenue records showed that he didn’t pay NPPR on either of the properties. Revenue stated that Oliver confirmed that the Location B property was his main residence in his LPT return, made in May 2013. Also, when Barbara applied for her state pension in 2013, she said she was separated at the time. They also had evidence of a letter from Oliver stating that he and Barbara separated in 2007. Plus, a letter from Barbara stating that Oliver could use her tax credits during the period of separation until the divorce. Revenue cited the key piece of tax law that
“A wife shall be treated for income tax purposes as living with her husband unless either….
(b) they are in fact separated in such circumstances that the separation is likely to be permanent”
The key finding for the TAC was to determine
- Was there an actual separation, and
- Based on the circumstances from when the separation was likely to be permanent.
The TAC quoted a UK case of Nugent-Head v Jacob where Lord Justice Bucknill presided. In other words, “wives living with their husbands” fall into two classes:
- husbands and wives in fact living together, and
- husbands and wives who are for the time being living apart, not because they wish to do so, but by reason of the force of circumstances.
Based on the evidence and submissions the TAC was satisfied that Oliver and Barbara were separated from 2007
The key determining factors were:
- Oliver purchased a property in his own name in 2007
- In correspondence with Revenue Oliver stated, “We separated amicably in April 2007″ and
- The circumstances of the separation were not by reason of force of circumstances. He cited that the car travel time from Oliver’s work in Location B to the family home at Location A was 30 minutes. Because of this, it wasn’t reasonable to accept that a 5 day week separation was by force of circumstances.
The TAC also ruled that the separation was likely to be permanent from sometime in the period 2007 to 2012. For this ruling, he relied on the facts as presented with the main ones being:
- Oliver claimed TRS on the Location B property from 2009
- He didn’t pay NPPR Tax on the Location A or B property
- Oliver declared the Location B property to be his main residence on his LPT return in 2013
- When importing a vehicle, he confirmed the Location B property was his main residence when making the VRT declaration and
- Barbara’s pension application form stated she was separated at the time of the application in 2013
Oliver was out of luck. The amended assessments stood, and he failed in his appeal.
Oliver was always going to fail in this case. There was too much evidence against him, and he shouldn’t have appealed. He either didn’t take advice or was badly advised. It also highlights the amount of information that Revenue have on us. This has only increased since the tax years under review in this case. Paying for good advice is an investment. You need to make sure you are well looked after, and your advisor protects you. Don’t pay any more than you have to. Oh, and watch out for Bette Davis eyes!
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