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Part IVIncome Tax, Corporation Tax and Capital Gains Tax

Chapter IGeneral

Income tax: charge, rates and reliefs

79Relief for maintenance payments

(1)Sections 347A and 347B of the [1988 c. 39.] Taxes Act 1988 and section 38 of the Finance Act 1988 (which contain provision with respect to the deductions from income allowed on account of maintenance payments) shall have effect in relation to payments becoming due on or after 6th April 1994 with the following modifications.

(2)Section 347A (which restricts the making of deductions) shall apply to any payment made—

(a)in pursuance of any obligation which falls within paragraphs (a) to (c) of subsection (4) of section 36 of the Finance Act 1988 (existing obligations) and is an obligation under an order made by a court, a written or oral agreement or a deed executed for giving effect to an agreement, and

(b)for the benefit, maintenance or education of a person (whether or not the person to whom the payment is made) who attained the age of 21 on or before the day on which the payment became due but after 5th April 1994,

as if that obligation were not an existing obligation within the definition contained in that subsection.

(3)In subsection (2) of section 347B (relief for qualifying maintenance payments)—

(a)the words “Notwithstanding section 347A(1)(a) but” shall be omitted; and

(b)for the words from “in computing” to “to deduct” there shall be substituted “for a year of assessment to an income tax reduction calculated by reference to”.

(4)In subsection (3) of section 347B (restriction of relief to amount of married couple’s allowance), for the words from the beginning to “exceed” there shall be substituted “The amount by reference to which any income tax reduction is to be calculated under this section shall be limited to”.

(5)In subsection (5) of section 347B (other payments attracting relief), for “otherwise than under this section” there shall be substituted “by virtue of section 36(3) of the [1988 c. 39.] Finance Act 1988 but otherwise than in accordance with section 38(2)(a) of that Act”.

(6)After subsection (5) of section 347B there shall be inserted the following subsections—

(5A)Where any person is entitled under this section for any year of assessment to an income tax reduction calculated by reference to the amount determined in accordance with subsections (2) to (5) above (“the relevant amount”), the amount of that person’s liability for that year to income tax on his total income shall be the amount to which he would have been liable apart from this section less whichever is the smaller of—

(a)the amount equal to the appropriate percentage of the relevant amount; and

(b)the amount which reduces his liability to nil;

and in this subsection “the appropriate percentage” means 20 per cent. for the year 1994-95 and 15 per cent. for the year 1995-96 and subsequent years of assessment.

(5B)In determining for the purposes of subsection (5A) above the amount of income tax to which a person would be liable apart from any income tax reduction under this section, no account shall be taken of—

(a)any income tax reduction under Chapter I of Part VII;

(b)any relief by way of a reduction of liability to tax which is given in accordance with any arrangements having effect by virtue of section 788 or by way of a credit under section 790(1); or

(c)any tax at the basic rate on so much of that person’s income as is income the income tax on which he is entitled to charge against any other person or to deduct, retain or satisfy out of any payment.

(7)In subsection (3) of section 38 (amount of relief in transitional cases for persons making payments), for the words from the word “aggregate”, in the first place where it occurs, to “exceed” there shall be substituted “amount (if any) by which the relevant aggregate exceeds the amount specified in section 257A(1) of the Taxes Act 1988 for the year; and in this subsection and subsection (3A) below “the relevant aggregate” means whichever is the smaller of the following, that is to say, the aggregate amount of the payments made by him which fall due in that year and to which this section applies and”.

(8)After subsection (3) of section 38 there shall be inserted the following subsection—

(3A)Sections 347A and 347B of the Taxes Act 1988 (except, in the case of section 347A, so far as it restricts the extent to which any payment is to be treated as forming part of the income of the person to whom it is made or any other person) shall have effect as if so much of the relevant aggregate for any year of assessment as does not exceed the amount specified for that year in section 257A(1) of that Act were a qualifying maintenance payment made otherwise than in pursuance of an existing obligation.