New CMS rules (March 2022)

[LeighR]

Hi - hope everyone is well. I have a question relating to the new CMS rules that are due to come into force (https://www.gov.uk/government/news/children-to-benefit-from-changes-to-child-maintenance-service)

Anyone know when these might come into effect and what is meant practically by 'unearned' income? I'm a high earner who pays a great deal to my ex, only to see her spend most of it on herself. The idea now that they may also look at my savings and pay her even more is really tough to take. Can that be true or is it more of a case that people with very low earnings/ people living just off their savings will be looked at in this way?

Any insight would be useful - thanks

 

[StayStrong]

Hi.

The press release relating to future legislation is obscure on detail, hence your question.

"Unearned Income" suggests share dividends and/or pension payments to me.

HTH, SS.

 

[Roblox]

I think they currently base it on an individual's employment earnings.

To me this suggests they can also factor in interest, dividends, rental income and pension income etc.

I'm kind of assuming here but I suspect they will look at total taxable earnings like on a tax return.

 

[Roblox]

I'd be surprised if savings were looked at.

 

[Kyle]

Something tells me those changes have been immediate.

The full consultation response from Government states that unearned income constitutes as certain taxable income such as income from savings and investments, land or property or other miscellaneous sources, such as inheritance. So essentially income that is not acquired through work or business activities.

Some paying parents disagreed with the proposal, citing that they were potentially saving for the future needs of their children and for their retirement.

But this is all about giving the CMS broader powers to force organisations to share data about their employees to crack down on separated parents who won't pay.

It will be interesting to see how unearned income is factored into maintenance payments by the CMS. This could go one of two ways. They do it correctly, proportionately and fairly. Or they completely balls it up. It's not fair. Not proportionate and it turns the screw even tighter on people.

 

[Roblox]

My comment should have read total taxable income not earnings. That's harsh if they include things like inheritance.

 

[Kyle]

They haven't actually used the word inheritance per-se, in their consultation response paper, instead using the term "other miscellaneous sources."

The previous position on child maintenance calculations was "inheritance isn't income, so won't be counted" but they've just added "unearned income" to the new legislation after including the question in the consultation;

Question 1. What is your view on including a paying parent’s unearned income alongside their earned income in the initial CMS calculation, rather than only when a variation is requested?

The response to this question was predominantly positive, confirming that this would provide a more accurate reflection of the paying parent’s overall income.

So I'm cautiously cynical until the reality of these changes comes to light.

 

[Ash]

In other areas, the term "unearned income" just means any other income basically. As mentioned above - from savings or other sources (like having a second home rented out). And as Roblox said this is taxable income basically.

I am not 100% sure how they class capital these days. The last time I had any enquiry about this was before it became the CMS - when it was still the CSA. My ex was threatening to report me and I was worried. Because of equity in business property and thought that might count and she might put me out of business.

A very helpful lady was quite sympathetic when I explained the situation and said savings were only looked at over £60,000 and gave me a tip. She said if you have anything over that amount, put it into property as we don't count property value/equity. I didn't have anything like that amount of savings anyway. And as I say, that was before it became the CMS so they may calculate differently now.

But I think income is income and capital is capital - treated differently. So any income is a regular payment/income - whether earned or from interest on savings etc etc. Whereas capital is savings and property is property.

Having said that I don't know if they consider property equity or savings these days. I assume they consider savings over a certain amount still.

Dividends from jobs etc have always been counted I think. I think it would also include any income that isn't taxable (eg some benefits or those might be counted differently).

 

[Roblox]

As you mention Ash the classification of income and capital gains is quite distinct for UK tax purposes so I assume capital gains are not included (based on the limited guidance here).

Didn't realise that there was a 60k limit on savings, interesting to know although can't imagine that will be an issue for me in the next 10 years or so whilst still within the CMS system.

For self employed that operate a company and draw a dividend instead of taking a salary. Will this catch them or has this always been caught anyway?

 

[Ash]

I don't know if the 60k savings limit is current. That used to be the case with the CSA. I think dividends have always been caught anyway - if the Mother has reported such things to CMS - they look into them. Thing is, if someone had a second home and sold it, suddenly the equity from that may be deemed to have savings and then it was the case it needed to be less than 60k. I have heard stories of ex's reporting to the CMS when Dad has inherited money - I'm not sure if it's assessed or not. I suspect not, as you say. But it can be claimed on post divorce if there's no clean break.

In my case they purely went on my Tax return (CMS about 3 years ago). Nothing was asked about savings etc. I think it is only when a Mother tells them "he's hiding money" or something - they look into things more thoroughly.

 

[LeighR]

Looks like there is more information here (assume the outcome of the consultation): https://www.gov.uk/government/consu...tenance-modernising-and-improving-our-service

From what I read (though I may be wrong) if it goes through HMRC then it will automatically be included when this becomes law. There is talk about 'property income' but not sure if that includes a property that is inherited and then sold.

 

[Ash]

Their terminology is skew iff from the outset. They class the paying parent as "otherwise known as the non resident parent" and the receiving parent as "the parent with care". Yet there can be shared care orders with unequal time, when they are both the parent with care!

"Income tolerance" sounds new - I may be wrong. It sounds like if the paying parent's pay goes up or down within a certain amount there won't be a reassessment - only if it changes quite a bit. This has pros and cons. The pros being if you earn a bit more it should stay the same. The cons being if you earn less you still have to pay the same amount.

Point 4 under "Unearned income" sounds like they are going to try and stop people arranging their finances to avoid certain monies being counted. ie more scrutiny.

The self employed bit sounds better. Eg If I earn more one year I have to pay based on that amount during the following year, when I am earning less! Sounds like they will go on income estimates rather than be a year behind - and then adjust.

Family based arrangements still supported.

 

[dinkydora]

My comment should have read total taxable income not earnings. That's harsh if they include things

My comment should have read total taxable income not earnings. That's harsh if they include things like inheritance.

Harsh is right. What they are effectively doing is disregarding a person's last will and testament. If I wanted to leave my money to a child I don't recognise as my grandchild then I would say so in my will. My son inherits and the bimbo he had a drunken fumble with makes a claim.