The government is committed to marriage and the family' began the summary paper of the Lord Chancellor's proposals regarding the grounds for divorce and the future of mediation, published on 6 December.

However, six days earlier the Right Honourable Kenneth Clark QC MP made important changes in the budget which will adversely effect both married couples and separated and divorced couples.

Whilst one aspect of the change -- the married couples' allowance (MCA) -- received publicity, the other changes regarding the tax implications of maintenance payments have generally been overlooked by budget analysts.

But they are an important indicator of what may be longer term changes.

The married couples' allowance was introduced as part of the major reform of the taxation of husbands and wives, ie that of independent taxation.

It was announced in Nigel Lawson's radical budget in March 1988 and took effect from April 1990.

Instead of a husband's and wife's income being added together and then taxed on the husband, the income and gains of the husband and wife are now assessed and taxed separately.

Each partner receives his or her own personal allowance (£3445 if under age 65) to deduct from his or her total income (s.257 of the Income and Corporation Taxes Act 1988).

A spouse's unused personal allowance cannot be transferred to the other.In addition, in recognition of the special legal relationship created by marriage, Nigel Lawson also announced in 1988 that a married couple living together would, from April 1990, receive a married couple's allowance, now amounting to £1720, to deduct from total income (s.257A of the Taxes Act 1988).

However, the old mould was not completely broken for it is the husband who primarily is entitled to this allowance against his income and gains.

He may transfer it wholly or partly to his wife.

Thus if either husband or wife have insufficient total income against which to set the allowance, any unused portion of the allowance may be transferred by agreement to the other spouse.

This election to transfer must be made in writing to the inspector of taxes within strict time limits (s.257BA and s.257BB of the Taxes Act 1988).

If the spouses cannot agree an allocation of the MCA between them, the wife is entitled to claim one-half of the allowance.At present, the MCA provides relief at all rates of tax, ie 20%, 25% and/or 40% as applicable.

But from April 1994, the MCA will be set only against income subject to the lower rate of tax and so the relief will be restricted to 20%.

This change was introduced in the spring budget 1993.

In the autumn budget it was announced that from April 1995, the relief will be further restricted to 15%.

It is understood that both Kenneth Clark and Michael Portillo find the married couples' allowance an anomalous provision, hence they felt no difficulty in restricting it to income subject to increasingly lower rates of tax.

Many people may feel that it is inconsistent for a government which actively promotes itself as a party of marriage and the family to reduce in worth a tax provision that specifically supports marriage.

Nigel Lawson's 1988 budget removed a substantial number of tax advantages to co-habitation replacing them inter alia with the married couples' allowance.

It appears that Kenneth Clark is retreating from this and might eventually make marriage tax neutral.

The allowance has remained unaltered since the 1990/91 tax year and was not increased in line with inflation in the November budget.

Hence its real value is continuing to fall.Changes in the tax treatment of maintenance payments -- the first changes since 1988 -- were detailed in the same Inland Revenue press statement as the married couples' allowance.

Before explaining the present changes, it is necessary to understand the very radical changes brought in by the Finance Act 1988.

For tax purposes there are two main categories of maintenance payments, namely those which were in existence on or before 15 March 1988 and those which came into force after 15 March 1988.

The former are often referred to as 'old rules' maintenance, the latter as 'new rules' maintenance.

There is a hybrid third category: maintenance paid by pre-March 1988 arrangements but subsequently increased in quantum from the 1988/89 level.New rules maintenance payments are payments pursuant to orders or agreements made after 15 March 1988 subject to transitional arrangements referred to below.

New rules maintenance is tax-free for the recipient, ie as if it were a gift.

The maintenance is paid out of the taxed income of the payer, and it cannot be set against tax (ie it is not a charge on the payer's income).

However, one small concession was made for such payments, ie the introduction of maintenance relief (MR) for the payer.

Since 1990/91, maintenance relief has been £1720, ie the first £1720 of maintenance paid gives relief against income subject to all rates of tax.

There has been no subsequent increase in the amount of the relief.

Although therefore not of such value as maintenance payments pursuant to the old rules, as set out below, it did give some measure of tax relief to payers.

As within MCA, from April 1994 MR will only be set against income subject to 20% tax and from April 1995, relief will only be available at 15%.

These changes were announced in the spring and November budgets respectively.

Therefore the value of this relief -- which has been falling since 1990/91 (because it has not been increased in line with inflation) -- will now fall even more rapidly as it will provide relief against increasingly lower rates of tax.

Inevitably it will become ripe for abolition in only a few years.

The tax treatment of recipients has not changed.Old rules maintenance is maintenance paid pursuant to o rders made on or before 15 March 1988 or agreements entered into before 15 March 1988, and including orders made pre-30 June 1988 but applied for pre-15 March 1988.

The maintenance is mostly taxable in the hands of the recipient and is paid gross.

The payer can set it against income subject to all rates of tax.

It therefore had and still has significant value, particularly for higher rate tax payers.

Often it was the only means by which the levels of maintenance could be afforded by payers who could set the payments against 40% or previously higher rates of tax.

The recipient would normally only pay tax at lower rates representing a net gain.

It therefore helped both the payer's former family and any new family.

Before 1988 it came under some attack because it was viewed as benefiting divorced families whereas married families would not have the benefit.

Nevertheless it did recognise the reality that it is more expensive to support two families than one, particularly when there are commitments to a new wife and children of a second relationship.

However, the benefit was ended for new maintenance arrangements from budget day 1988.The change in the November 1993 budget is that from April 1994, the first £1720 of relevant old rules maintenance will be set not against income subject to all rates of tax but against income subject to 20% rate only.

From April 1995, the tax relief on such payments will be reduced to 15%.

For those who only a year or so before had the benefit of 40% tax relief, this will be a blow.

The balance of old rules maintenance payments will continue to be eligible for relief at the payer's marginal rate of tax.In March 1988, with a number of other tax and family law commentators, we predicted that the old rules maintenance tax reliefs would become increasingly vulnerable throughout the 1990s to a Chancellor who wanted to abolish them altogether.

It is perhaps surprising that it has taken almost six years to be openly attacked by HM Treasury.

However, its days now seem numbered and unless there is a change of political heart or thinking, it is doubtful whether this relief will survive the decade.

The tax treatment of recipients is unchanged; recipients receive the first £1720 of old rules maintenance payments tax free.The old rules maintenance provisions apply only to maintenance paid up to the amount for which they qualified for relief in 1988/89.

If subsequently the maintenance is varied upwards, it is only the 1988/89 amount that receives the favourable tax treatment of old rules maintenance.

Additional amounts are treated as new rules maintenance and paid out of taxable income and received tax-free by the payee.

If in 1988/89 the husband paid to his former wife pursuant to old rules maintenance the sum of £10,000 and if in 1993/94 he paid £14,000 pa as a result of an increased order, it is only on the £10,000 that he is able to obtain tax relief at basic and higher rates.

The additional £4000 is treated as new rules maintenance.However, there is a saving provision that it is the maximum amount of all qualifying maintenance paid in 1988/89 that counts.

Therefore, if in 1988/89 the husband paid his former wife £10,000, but also paid his two children £3000 pa each (ie a total qualifying of £16,000) and if, by 1993/94, one of the children had left full-time education and the other was still receiving £3000 pa and the wife had the increase to £14,000 per annum (ie total payments of £17,000), the husband would be able to claim old rules relief for £16,000 total maintenance with only £1000 receiv ing the less favourable new rules tax treatment.

The same would apply if the former wife's maintenance ended but both children's continued.

The ending of qualifying maintenance to one payee allows a switch to payments to other relevant payees.

This is a very important saving which must be used to full advantage by taxpayers.The hybrid arrangements are a nightmare to taxpayers and their advisers when completing tax returns as they have continually to go back to 1988/89 levels to work out what is paid out of taxed or taxable income and what is taxable or tax-free when received.

This is a particular problem when there are school fees paid pursuant to old rules maintenance obligations.

The fees inevitably increase each year, producing obvious hybrid arrangements.

Also children change schools, requiring strictly a new school fees contract each time.

Our experience is that the Inland Revenue claims branch at Lytham St Anne's, which deals with tax on maintenance payments, invariably takes a strict approach and requires all formalities to be complied with.

The government's lack of help in simplifying this situation is perhaps consistent with an unstated intention to phase out old rules relief.There may be a benefit for some taxpayers to switch from the old rules to the new rules in which no tax reliefs are received save for the maintenance relief but with no tax paid by the recipient.

A switch is likely to be accompanied by some agreed reduction in maintenance, or at least no 'inflation' increase, as the recipient would thereafter receive the payments tax free instead of being taxed on them.

It is only the payer who can make the election to change.

The election must be in writing within 12 months of the end of tax year to which the new rules are to apply (s.39 of the Finance Act 1988).

It is final and impossible to switch back to old rules.

It will often only be beneficial if the limit of relief paid at the 1988/89 level is below the maximum amount of maintenance relief available, or in other restricted circumstances, such as the payer having no UK taxable income, so that the old rules reliefs are worthless and only attract tax for the recipient.

Careful calculations are needed to ascertain if this election can be of long term benefit.Maintenance to children over 21 only applies where, usually, the child is still in full-time education or training.

Since 1988 there have been two important differences in tax treatment of child maintenance when a child is 21.

First, maintenance has to be paid net of basic rate tax and not gross.

Secondly, although the payer may pay some part of the overall maintenance pursuant to new rules, it is all taxable in the hands of the recipient 21-year-old.

The change announced in the November 1993 budget is that all relief for the payer will be abolished for maintenance to children when they reach their 21st birthday on or after 6 April 1994.

Existing 21-year- olds are safe.

The impact is that in due course there will be no tax advantages of maintenance orders to 21-year-olds in full-time education etc.

They may be still needed for enforcement purposes and care is needed if it represents 1988/89 qualifying old rules maintenance which could be utilised if any other payee's maintenance has increased since 1988/89 as referred to above.The government has recognised the high cost for families of marriage breakdown.

The government's proposal to reform the law of divorce is linked with the need for more cost-effective resolution procedures, particularly through mediation.

In considering the operation of the Ch ild Support Act the government announced on 22 December a number of modifications to recognise the reality and cost of second families.

The taxation system is one way in which to give help and assistance to those supporting children and dependant former spouses.

It is regrettable that the government at the November 1993 and other post-1988 budgets have seen fit to whittle away at this particular form of help.

Similarly, during marriage there should be every incentive including a worthwhile MCA for couples to stay together.

Marriages should be given every encouragement to continue, thrive and prosper.One historic encouragement is through the tax system and it is regrettable that this should be diminished.