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Hi,
my ex-, who works for the CMS, has applied for a variation on the grounds of 'notional income' which is apparently something the CMS have been able to consider since 2018.
From what I understand 'notional income' is a calculation of income from non-income generating assets. It can be calculated on any single asset that is worth in excess of £31,250, and it is calculated on an assumed rate of 8%. (This results in an income of at least £2,500, which is the threshold for unearned income (such as rental income). Assets include things like gold bullion, crypto currency, and any 'money' (whether in cash or deposited in investments or savings accounts).
Refer here for details :- https://commonslibrary.parliament.uk/research-briefings/cbp-7773
Now I was always on the understanding that CM was only calculated on 'actual' income and not assets, but it seems that the above provision essentially allows for asset values over the £31,250 threshold to be 'converted' into 'notional income' and this value added to my 'actual' income with the total then being subject to the CM calculation.
So I have had to list ALL my financial assets to the CMS from bank accounts to pension funds to savings and investments. Most are under the threshold but I have two assets in particular which are over this :- 1) A defined contribution pension fund and 2) ISAs which collectively are over the threshold (I have six ISAs with only two of them individually over the threshold)
The CMS have agreed to exclude the pension fund as it is a pension fund, but they want further information about my ISAs
The ISAs are, and always have been, a repayment vehicle for my mortgage. I.e. instead of getting a repayment mortgage and paying that down directly I chose to get an interest-only mortgage and invest money elsewhere for this investment to build up over time and eventually repay the mortgage. If I had chosen a repayment mortgage instead then I wouldn't even have the ISAs at all (or at least their value would be a fraction of what it is). So it seems absolutely bizarre that - potentially at least - the way I chose to repay my mortgage can have a drastic impact on my CM liability. Money that I have putting away for decades to repay my mortgage may now get assessed for 'notional income' !
I am absolutely flabbergasted at this ! It seems that the receiving parent only has to request a variation on notional income grounds for the CMS to then look at ALL my assets and potential apply the notional income variation on them. And of course my ex-, being a CMS employee, is in the position to know about this. Also - she is in a postion to know about all my personal finances because during the course of our separation she rifled through all my papers and took photos of all my balances (I found the photos on Google Photos one day).
I am just gobsmacked - I sincerely hope that the CMS will listen to reason on this ... this provision seems so utterly unfair and also open to inappropriate application !
Anyone with any advice ?
Hi there
I think many people do know about this rule although not what it's called nor is it really spoken about or mentioned much.
If CMS was only ever calculated based on actual income like you say, then potentially it would be possible to choose to be out of work but have £100k in cash in your bank account paying 0% interest (or accumulate wealth in another unearned way) which is used to cover your day to day expenditure with no liability for CMS which surely wouldn't be right.
As the CMS is part of the DWP, its also in line with how they assess for Universal Credit for example, in that not only do they look at income but also any assets that you may have and if over a certain level (£6k to £16k on a sliding scale I believe) you would not be entitled to any benefits as your assets should be used to provide for you. In the case of CMS, its considered that your assets should be used to provide for your children.
Its also the reason many paying parents move their money to family/new partners etc to keep their total assets below a certain level so that should the CMS investigate there is nothing to be found.
If you have set aside the ISAs for your mortgage, could you use the funds to overpay the mortgage and bring down below the asset amount allowed?
All the best.
It's also right that pensions are excluded (unless you are drawing down on the pension and therefore would be considered gross income) as the CMS do allow a certain % to be paid into your pension based on your age which is deducted from your gross income. Anything above this would come under diversion of income rather than notional income.
What percentage does CMS consider to be ok for each age range before it is classed as diversion of income please? Do you have any link to this info?
If the threshold is applicable to each individual asset as the provisions seem to state, could I not argue that rather than the sum total of all 6 ISA funds (that happen to be on the same platform) counting as one asset, that each of the 6 distinct ISA funds are treated as six separate assets ?
Further can I not also argue that the valuation should be taken as at the date of the last annual review rather than current date (which would be significantly less) ?
As to your suggestion that I could use the ISAs to reduce the mortgage now, would this be acceptable given that I have already recently provided a valuation of my ISAs before such a withdrawal ? This would surely be viewed as an attempt just to avoid the additional CM amount and therefore the adjusted valuation would not be used in the calculation ?
For me however it seems grossly unfair that purely because of the way I chose to repay my mortgage impacts my CM liability. If I had chosen a repayment mortgage I wouldn’t even have the ISA funds.
Reading the link you provided I don't believe you can argue the ISAs are treated individually as it mentions that multiple shareholdings would be treated as one asset so I assume they will do the same with cash balances.
I agree with you re the fairness point and how you've chosen to pay your mortgage. I'm unsure as you've declared the values how paying down the mortgage would be interpreted. You may need to seek specialist advice re this.
I believe they will only use current valuations, even if they used annual review date you would soon have another annual review thus updating to your current balances anyway.
Re attempting to avoid the additional CM, do you have any evidence that the ISAs were your repayment vehicle for interest only mortgage? Usually you or broker would provide confirmation of payment vehicle to the bank in order to secure the mortgage?
If it was me I'd probably consider changing the mortgage to a repayment only, use the majority of the ISA funds to pay down the outstanding mortgage and improve my LTV and explain to the CMS (potentially having taken advice from a broker) that due to the application for notional income it is no longer in your interests (as confirmed by broker or Financial Advisor) to have an interest only mortgage and therefore have converted to a repayment mortgage as the ISA being considered as notional income will cause undue hardship as the repayment vehicle will no longer be on track to pay off the interest only mortgage due to you having to divert your income to pay the additional CM rather than into your ISA.
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