In Sean Kirby v Revenue & Customs  TC07054 the First Tier tribunal (FTT) held that pension income paid to Mr Kirby’s ex-wife remained taxable on him as there was no pension sharing order in place.
s579C ITEPA 2003 provides that the person liable for any tax charged on pension income is ‘the person receiving or entitled to the pension under the registered pension scheme’.
- A pension sharing order divides up any pensions between the spouses or creates a new pension for a spouse who does not have a pension such that each spouse becomes entitled under the pension scheme.
- Maintenance payments made under a divorce settlement are tax free for the recipient with no tax relief for the payer.
When Mr Kirby and his wife divorced in 2012 it was agreed that Mrs Kirby would receive half of Mr Kirby’s private pension income.
- No formal sharing order was made due to the costs of formally splitting the pension funds.
- Mr Kirby filed tax returns declaring half of his pension income from the date of divorce for 2011/12 and for 2013/14 stating that he had a court order requiring him to pay half of his pension to his ex-wife.
- HMRC repaired the 2011/12 return and amended 2013/14 to include all of the pension income; there was no pension sharing order and the payments were not qualifying maintenance payments under the divorce settlement. Mr Kirby appealed.
The FTT agreed that the pensions were taxable in full on Mr Kirby; only he was entitled to the pension income and unless and until his pensions were split into separate pots he could not escape the full amounts being included as his income for the purposes of assessing his tax liability.
This case highlights the importance of taking into account tax when reaching agreements on divorce; in trying to cut costs by deciding matters on a more informal basis, albeit with the agreement of the divorce court judge, Mr Kirby found himself with an unexpected ongoing tax cost which was not taken into account when determining the amount he should give to his ex-wife.
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