Hello
I've read through all the leaflets from the CMS regarding how Child Maintenance is calculated and no mention is made of tax free income from pensions.
It's quite common for people over 55 to take one or more tax free lump sums from their pension up to a maximum of 25% of the pension pot.
All other tax free income, like the interest from ISA savings, is not included in the child maintenance calculation. The calculation is based on earned income that is subject to tax by the HMRC.
Therefore I would assume that any tax free income from a pension would also not be taken into account.
However nowhere in the CMS documentation does it mention this type of pension income and therefore confirm one way or the other.
Does anyone have any experience or knowledge on this topic and if if so please could you give me some advice.
Thanks
John
I would check with CMS directly, but I would agree with your logic, as long as the tax free sum isn't greater than the capital amount that CMS will take into account as assets (I think it's £65k, but I'm not sure on this).
Thank you for your reply.
I have some good news for you, the 65k limit on assets and the presumption that you are earning 8% on assets above that figure no longer applies with the new CMS.
They calculate your maintenance payments solely based on the taxable income figures supplied by the HMRC.
If the Mother asks for a variation they will then look for 'unearned income' such as interest from savings, share dividends, and income from property rentals. If this income exceed £2500/year then the figure is added to your income for the assessment of maintenance. (But this only happens if the Mother asks for a variation)
This means you could have substantial savings over 65k, but if they are invested in such a way that they earn less than £2500/year in interest, the CMS cannot touch them. This is a big improvement over the old CSA rules.
John 🙂
That's interesting, curious why they did that when it changed to CMS, though the 8% was always a joke.
Just a follow up to my original post...
I phoned and asked the Child Maintenance Service if tax free pension withdrawals are counted in their assessment and the person I spoke to didn't know the answer. They told me they would go away and find out the answer and then ring me back, but I didn't hear from them again.
So I downloaded a copy of the legislation upon which Child Support is based: "The Child Support Maintenance Calculation Regulations 2012"
It states clearly in the legislation that only income that is taxable in one form or another is taken into account for the child maintenance assessment.
So unless anyone has experience to the contrary, I am confident that tax free pension withdrawals are not included in the assessment for child maintenance.
Regards
John 🙂
I wonder whether it's income that counts towards tax - if you take more than 25% of your pension as a lump sum, then that is taxed, so the first 25% is a tax free allowance, but counts towards building up to that allowance.
In the same way, if someone earns less than £11000 per annum, they don't pay tax, but would still be liable for maintenance - I'd get back in touch and get a definitive answer (preferably in writing) so you don't end up with arrears.
It is always best to put your queries to the CMS in writing and ensure they reply in writing also. Then you have documentary evidence against them in case they allege they never gave you certain advice - be aware that the right hand often does not know what they left hand is doing or the system was designed to confound.
All the best.
I know this is an old topic but here's what I'm up against at the moment with CMS regarding this question about tax free pension lump sums.
Like everyone else, I don't have any trust in the CMS with regards them being able to tell the truth and get anything right. Some months ago I phoned them to ask the same question and the call taker had no idea. She didn't even know what a tax free pension sum was, never heard of it 🤦
So I wrote to them. 3 months later still no reply. So I logged into their portal and messaged my question. Eventually got a written reply stating they had no idea, couldn't advise me but would pass my enquiry into their policy/legal team to answer. And no surprise to me, none of the so called legal policy experts know either. Utter disgrace.
So I contacted HMRC and guess what.....they don't know either. Told me to contact CMS !!!!! Both depts are an utter joke. No one there has a clue about the job they're paid to do.
So my next step is ask my MP to contact the head clown who is in charge at the CMS and try to get a proper answer.
I shouldn't even be paying CM, my daughter is nearly 18 and left school ages ago. Not seen or heard from her for years. Last rumour I heard was she moved abroad to work. Advised CMS of this and was told that I must continue to pay her mother untill such time her mother contacts CMS to advise of "any changes" and if I stopped my standing order I would be in trouble. Got the, "we will take your driving licence off you, your passport and send you to prison" threat.
System is so corrupt you couldn't write it.
D.
Thank you for your reply.
I have some good news for you, the 65k limit on assets and the presumption that you are earning 8% on assets above that figure no longer applies with the new CMS.
They calculate your maintenance payments solely based on the taxable income figures supplied by the HMRC.
If the Mother asks for a variation they will then look for 'unearned income' such as interest from savings, share dividends, and income from property rentals. If this income exceed £2500/year then the figure is added to your income for the assessment of maintenance. (But this only happens if the Mother asks for a variation)
This means you could have substantial savings over 65k, but if they are invested in such a way that they earn less than £2500/year in interest, the CMS cannot touch them. This is a big improvement over the old CSA rules.
John 🙂
@Vonsworld - are you sure that assets are no longer assessed in this fashion ? Can you provide any sources ?
I ask because I have recently been assessed on asset values - the variation you are talking about is called a 'notional income' variation. The threshold for inclusion of an asset is above £31,500 and if breached notional income is calculated at 8% of the asset value and assessed (8% of £31,500 = £2,500, the same threshold for inclusion of eg. rental profit). There are some assets which are excluded (such as your primary residence, etc)
Refer here, page 9
https://researchbriefings.files.parliament.uk/documents/CBP-7773/CBP-7773.pdf
@Will99 these these are the up to date rules they have. notional income. they would also consider shares, if the dividends amount to £2,500 per year and above. same for rental income from property.
So are you saying that @Vonsworld is mistaken, i.e. that the notional income provisions still apply ?
@Will99 Under the current 2012 scheme, a person with care can seek a variation if they believe the non-resident parent has additional income, including “unearned income” of £2,500 a year or more or, since December 2018, “notional income” where the non-resident parent has a one or more non-income yielding assets each worth more than £31,250. Additional grounds include the diversion of income, or where the non-resident parent is on the nil or flat rate of child maintenance (in certain cases) but has gross weekly income in excess of £100.
https://commonslibrary.parliament.uk/research-briefings/cbp-7773/