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Child Maintenance: When is capital, income?

Solicitors in London

Child Maintenance: When is capital, income?

News article published on: 10th February 2020

Reading a recent case from the Child Maintenance Tribunal, I considered it worth flagging up that the Child Maintenance Rules changed in 2018, regarding paying parents’ capital.

For the purposes of this article I shall refer to the Parent With Care/Non-Resident Parent (CMS terms) as Mother and Father respectively, acknowledging of course it depends on the individual situation.

On an application to the Child Maintenance Service (CMS) for an assessment, it will initially assess on the basis of gross income using tax returns, etc.  The Mother can apply for a variation to take into account capital. Where the Father’s capital exceeds £31,250 then a notional income of 8% of the value can be ascribed to him. This can include a number of types of assets including assets held in a trust of which he is a beneficiary (note that his primary residence is excluded). This is a very important change and should not be overlooked when advising clients on CM issues.

The case I mention was BB v Secretary of State for Work and Pensions and another (CSM) [2019] UKUT 314 (AAC) which considered a Child Maintenance Service assessment in 2016 regarding redundancy payments.  The question for the Tribunal was whether redundancy payments count as current income (and therefore should be taken into account as part of the calculation of Child Maintenance Payable).

The Tribunal held that the redundancy payments were not income, they were considered more like payments of capital, in that they were a compensation for the loss of a job, and taxed differently.  The Upper Tribunal concluded that current income for the purposes of a CMS assessment did not include redundancy payments, but the taxable part of the payment counted as historic income.  As I say, this concerned a CMS assessment made in 2016, the rules have now changed, and there is a new ground of variation for notional income to be ascribed to assets exceeding £31,250.

Blog post written by Lisa Pepper, Partner in the Family team.

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