Allowance goes to my wife but I pay the tax

Q&A: I get a contributory State Pension. My wife is paid a Qualified Adult Allowance, which is paid directly into her sole bank account.

While based on my stamps, to be eligible for this payment, she was means-tested in order to qualify and payment was required to be made to her unless she agreed otherwise.

I thought, under individualisation, her payment would be treated as her income (she clearly regards it as hers) with credits based on two-income couple. However, in their recent trawl on State pensions, the Revenue state this is incorrect and that the payment is in reality my income and taxable on me alone.

Are they right about this and, if so, how can one arm of Government (social welfare) insist on the money being hers while another insist it’s mine?

Mr KC, email

This is one of two letters I have received in the recent past on this issue – both of which appeared to have been stirred by the recent Revenue focus on pensioner income. Your confusion is understandable, particularly as the situation with regard to the qualified adult allowance has effectively changed through 180 degrees over the past decade.

In principle, the allowance is your income. It is claimed by you by virtue of your status as a State contributory pensioner, effectively to assist in the financial support of a partner or spouse who has insufficient income of their own. Your wife could not apply in her own capacity for the allowance so it is deemed by Revenue correctly to be your income and taxed accordingly.

The situation has been muddied by the evolution of the approach within what is now the Department of Social Protection. Some might deem this as political correctness, others as a fair and dignified way for the less financially independent partner to have an income.

The sums involved are not insignificant in the context of welfare payments. This year, through the qualified adult allowance, your pensionable income will increase by €153.50 if your wife is aged under 66 and by €206.30 if she is older.

Originally, the qualified adult allowance was paid to the person making the claim – ie you – notwithstanding the fact that it was payable only after a means test of your wife’s own means.

In 2002, the department of social welfare, as it was then known, changed the rules, allowing you, as the claiming pensioner, to opt to have the money paid directly to your wife.

There was provision, subject to a social welfare investigation, to have the money paid directly to your wife without your consent in cases where there might be problems in the home, such as gambling or alcohol abuse.

In 2007, the rules were changed again. Then minister Martin Cullen ruled that anyone applying for the State pension after September 24th that year would see any subsequent Qualified Adult Allowance paid directly to the dependant adult, in this case your wife, “in line with the commitment in the Programme for Government to provide qualified adults (who are the wives, husbands, partners of people receiving social welfare payments), with their own direct pension payment”.

As I understand it, only if your wife sanctions it, will the payment these days be made directly to you. However, you are still the person liable for the tax on it.

Calculating tax on gifts received over a number of years

I refer to your answer last week on the matter of gifting money to a child. You say, among other things, that “a parent is still allowed to gift or bequeath a child up to €250,000 (over the initial €3,000 exemption)”.

In the next paragraph you say that “. . . this €250,000 is cumulative”. I am somewhat confused.

Mr MA, email

Liability to capital acquisitions tax – more commonly known as gift tax or inheritance tax – depends on two things, your relationship to the person giving the money and any previous gifts or bequests you may have received.

First up, gifts and inheritances between spouses or civil partners are exempt from the tax. Thereafter, aside from an annual exemption between any two people of €3,000 a year, all relationships are divided into three groups, each with its own threshold.

At the moment, those thresholds are:

Group A: direct family (son/daughter) with a 2012 threshold of €250,000;

Group B: linear relation (sibling, niece/nephew, grandchild, greatgrandchild, grandparent or parent) with a threshold of €33,500;

Group C: stranger (all other relationships) where the threshold is €16,750.

The other important figure is the date of December 5th, 1991. Only gifts or inheritances received since this date come into the equation.

Essentially, if you receive a gift from a parent, it is deemed to be Group A. To assess tax you must first add the financial value of the gift to any other previous gifts received within Group A – ie only gifts and inheritances from a parent.

The fact that you received a separate gift of say €10,000 from an uncle (Group B) is not relevant in assessing tax liability on this gift from your parent because it is classed with a different group. Obviously, the gift from the uncle would need to be assessed alongside other gifts from grandparents and siblings, etc.

This is what I mean by cumulative. You can reach the threshold with one gift – if the sum is large enough – or by a series of gifts and inheritances (but only from people in the same group) over a number of years.

This column is a reader service and is not intended to replace professional advice. Please send your questions to Q&A, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to dcoyle@irishtimes.com. No personal correspondence will be entered into.