Notional Income - inheritance

@Will99 

Sorry to bother you again, but do you (or anyone else on here) know what the situation is with wrt notional income if an asset (in my case inheritance) is no longer in an account in your name, either because you spent it or gifted it to a friend or family member?

Can they use a certain date after which no matter what’s happened to inheritance, they still apply 8% regardless, even if you no-longer possess the asset?

Best

@vince101 

I really don't know on that. My first thought is that the CMS (perhaps their Financial Investigation Unit) will ask for a financial disclosure, where they expect you to provide details of all your assets. At this stage I think it's fine to only list assets in your name (unless they have asked otherwise). However they would be at liberty to ask you what you did with your inheritance, and if you had for example given funds to close family members or friends, I expect they would want to be satisfied that you hadn't just done that to protect the assets from the notional income calculation. So - and this is an assumption - there is no fixed criteria here, it depends on the judgement of the FIU and the discussion thereafter with them to satisfy them that your are not 'hiding' these funds to avoid being assessed.

If your ex- knows about your inheritance and how much it might have been, they they can always raise their concern that you have moved it 'out of sight' which may prompt the FIU to ask more searching questions

@Will99 

Many thanks. What about spending it? They can’t stop you spending your own money, right!!? And, what if a decision was made which ruled notional income would be taken based on cash held, but at a later date that same cash was spent. Surely you can then ask for the assessment to be performed again on the basis there is no longer any notional income?

@vince101 

Well firstly just to note that if you bought an asset with the money that asset itself may be in scope, if the total of that asset ‘type’ breached the threshold. So for example if you bought 2 cars (or whatever it is) both at £30k, then they could argue I think that as they are the same asset type then their value can be aggregated. Other than that I am not sure of any specific rules about spending the money, but there may be provisions (I don’t know) for the CMS in the end to make a judgement themselves that having considered all the facts they believe you are taking measures primarily designed to avoid CM assessment.

You raise a really interesting point - that the value of the asset (I presume whether cash, shares etc.) can change and be lower at a point after the date of assessment. There is a rule that says that your income has to change by at least 25% in order to trigger a new recalculation for that year - any less and you have to wait for the next annual review. However, I have been told that this 25% rule only applies to earned income and not other types, for example notional income. So does this mean that you can ask for a recalculation of the current year on the grounds that your notional income has dropped by any amount ? Common sense would suggest not, but I am unaware of any other restriction on this.

@Will99 

I thought the whole idea behind notional income was that you’re receiving income from an asset  and that this income should therefore be included in CM calculations. If you’ve spent the money (eg. on a car) how can they rule that you’re earning income from it. Most cars depreciate at an alarming rate! Savings accounts, ISAs, stocks, shares … I get it … but to rule that you’re earning income from retail purchases is ridiculous. I’d fight that one all the way! What if the purchases were for the children, for example…

@vince101 

Notional income is a concept of defining income from non-income generating assets. I.e. you are not actually receiving an income from the asset, but the CMS are able to calculate 'notional income' from the asset value and assess you on that notional income.

Refer https://researchbriefings.files.parliament.uk/documents/CBP-7773/CBP-7773.pdf - page 9

It says in there :- 

5.2 Notional income from non-income generating assets
From December 2018, the CMS has been able to calculate notional
income from a non-resident parent’s assets that are not generating
income; the CMS uses an assumed rate of interest of 8 per cent in the
calculation of notional income.

So £100,000 of cash is just as assessable as £100,000 of cars - spending one on the other makes no difference, other than it is the aggregate total of each type of asset that is subject to the £31,250 threshold for inclusion. I am not sure where you have eg. £100,000 sitting in a savings account - i.e. when you are receiving income from the asset - whether the interest is just assessed and the asset is ignored for a notional income calculation.

I believe that originally it was designed to capture those people who were able to limit their actual income and acquire / own assets instead, but it seems to be able to be defined to any asset type exceeding the threshold.

Yes - the underlying asset value can change, and thus the notional income which is based on that value also changes. As I said I am unaware of the rules around this in terms of asking for a new recalculation due to asset value changes, other than I am led to believe that the 25% rule doesn't apply.

@Will99 

Thank you for taking the time to explain all this. It’s extremely helpful. 
best

Vince