Deed of covenant – Tax relief

Deed of covenant is a written agreement where you agree to pay an amount of money to another person, without receiving any benefit in return.

A covenant can be used irrespective of what the money is finally used for.

To qualify for tax relief the payments must be capable of lasting for at least six years. The recipient has to have unused tax credits to make a covenant work.

If a person is over 65, their son or daughter can pay them up to 5pc of their income under a deed of covenant and the son or daughter will get tax relief on the amount paid on the difference between 40% and 20%. ( assuming they pay tax at the 40% tax rate )

The covenant must be legally documented in order for the person making the payment to receive the tax benefits.

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