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[Solved] Impact on Child Maintenance calculation of investment property tax rules

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actd
 actd
(@actd)
Illustrious Member

Well done on the progress so far - and sounds like you've got a good MP.

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Posted : 14/10/2020 7:09 pm
Will99
(@Will99)
Estimable Member Registered

Correcting my previous post 110191 :-
"... and he got back a not very helpful reply which essentially simply stated that CM calculations are based on the NON-PAYING parent's gross income and that there were no plans to amend this in the light of any HMRC changes."
should say -
"... and he got back a not very helpful reply which essentially simply stated that CM calculations are based on the PAYING parent's gross income and that there were no plans to amend this in the light of any HMRC changes.

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Topic starter Posted : 14/10/2020 9:15 pm
actd
 actd
(@actd)
Illustrious Member

Correcting my previous post 110191 :-
"... and he got back a not very helpful reply which essentially simply stated that CM calculations are based on the NON-PAYING parent's gross income and that there were no plans to amend this in the light of any HMRC changes."
should say -
"... and he got back a not very helpful reply which essentially simply stated that CM calculations are based on the PAYING parent's gross income and that there were no plans to amend this in the light of any HMRC changes.

I've amended your previous post to correct this.

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Posted : 15/10/2020 11:56 am
Will99
(@Will99)
Estimable Member Registered

OP here. Just to give a small update - my MP did get a reply back from the DWP SoS's office It didn't particularly deal with the core issue as for one thing the initial question had to be completely neutral and almost 'introductory' in nature. So I am hopeful that this is the beginning of a conversation at least, and my MP indicates so.

The difficulty is that the DWP/CMS have faith in their calculation, and consider the HMRC's gross income figure as beyond question - why should they care how that figure is made up ? The HMRC have faith in their changes to increase the gross taxable income of landlords - after all it has done exactly what it was intended to do.
The issue of 'unfairness' is not obvious and needs more than a letter to highlight.
Interestingly, the SOS's reply did mention mortgage costs - in a list of landlord's expenses that are deductible, so maybe they just need a bit of an update on that !
Anyway here's hoping ...

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Topic starter Posted : 29/10/2020 9:37 pm
actd
 actd
(@actd)
Illustrious Member

Interestingly, the SOS's reply did mention mortgage costs - in a list of landlord's expenses that are deductible, so maybe they just need a bit of an update on that !
Anyway here's hoping ...

I thought mortgage costs were still deductible, but only at 20% tax rate, or have I got that wrong? Sounds like your MP is willing to stay with it, so that's good.

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Posted : 30/10/2020 2:56 pm
Will99
(@Will99)
Estimable Member Registered

@actd "I thought mortgage costs were still deductible, but only at 20% tax rate, or have I got that wrong? Sounds like your MP is willing to stay with it, so that's good."

Landlord's mortgage costs are no longer deductible at all as of 2020/21 year. Their full amount forms part of your gross taxable income that the CMS uses to calculate CM amount, and that the HMRC uses to calculate your tax bill. However the taxpayer then gets relief on that income tax bill of 20% of those mortgage costs.
So for income tax on such costs, the landlord pays at his marginal rate but gets tax relief at basic rate.
For CM, the full mortgage costs are included in the gross income figure used in the calculation.

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Topic starter Posted : 02/11/2020 1:18 am
Will99
(@Will99)
Estimable Member Registered

Just to provide some more info on this.
My efforts via my MP to raise this issue at a general level are still where they were on my last update, with my MP still in the process of discussing this with the DWP.
However this issue has also arisen in my own CM case :-

My most recent annual review last month is the first one where my property income for the tax year in question is in profit.
Initially the CMS calculated my CM liability based only on my PAYE income, which actually showed a reduction due to increased payments in to my workplace pension, however my ex asked for a mandatory reconsideration and the CMS asked me for further info. So I have made full disclosure to them of my pension contributions and also my property income, and have given them a copy of my tax return.

Interestingly, my gross taxable property income as shown on the tax return is over the £2,500 threshold for inclusion in the CMS calculation, however when 'undeducted' finance costs (also shown) are deducted from this gross figure it is then below the £2,500 threshold.

So I pointed all this out to them - explaining about the impact of the HMRC changes, and suggesting that to get the 'true' property income figure they should deduct the 'undeducted' finance costs from the gross income figure.
I am waiting still for their response - though it has been 3 weeks now since I provided all this information, and the first payment under the new CM year is 1st January.
So not sure what is going on - maybe a mandatory reconsideration takes this amount of time normally, or maybe they are having their own discussions about what they should do...

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Topic starter Posted : 07/12/2020 6:14 pm
Bill337
(@bill337)
Famed Member

hi,

sounds like you have a real battle on your hands. CMS seem to look at things in black and white, and interested in only gross income figures. they also apply that £2,500 rule to dividends from shares/company. one size fits all.

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Posted : 07/12/2020 7:11 pm
Will99
(@Will99)
Estimable Member Registered

Hi just to provide a further update on this.

To remind you, there are two strands of subsequent discussion on this issue :-

  1. My raising the issue with my MP, and his subsequent discussions with the government including the Secretary of State for Work and Pensions
  2. My personal discussions with the CMS subject to my most recent annual review in which this issue has had an impact

In regard to 1. :-

There is no further progress. Latest was the SoS's response saying that the gross property income is usually net of allowable expenses (as I report above).

In regard to 2. :-

My ex- asked for a mandatory reconsideration of our most recent annual review on two grounds - Property income and my pension contributions.

The reconsideration on pension payments was rejected, the CMS making the judgement that my increased pension contributions were 'not unreasonable'.

The reconsideration on property income was successful, the initial annual review having not accounting for this income (this was the first year where my property had moved in to profit, and so this was not relevant in previous years). I had provided full disclosure of my tax return, and also explained the issue around finance costs to them, suggesting that the figure they use for my property income (as shown on the tax return) was not representative of my actual profit from my property due to the recent HMRC changes. The agent I spoke to actually understood my arguments, but said that they 'just use the gross taxable profit' figure as this is laid down in their process. He also said that I can lodge an appeal with HM Courts & Tribunals against their decision. The agent also suggested that as this was a matter that would impact other clients (i.e. any paying parent who is a landlord with associated mortgage costs) then an official appeal would be the most appropriate action to take.

So that is where I am at - I have lodged the appeal this week and I understand that it can take up to 3 months to complete.

What I am unsure of is whether the appeal body can judge only on whether the CMS have correctly followed their rules and/or process, or if they are also able to pass judgement on whether that process is unfair or not. So I have relayed all this to my MP, wondering if a challenge to the CMS calculation rules / process may require to come from his representations with the government rather than my own appeal.

I'll keep you updated ..

 

To add :- of the taxable property profit figure shown on my tax return, 64% of that is comprised of mortgage costs which I actually bore (thanks to the HMRC changes). So my argument is that it is unfair that the CMS use that gross figure as representative of my actual property income I received.

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Topic starter Posted : 05/03/2021 3:56 pm
HRabbit
(@hrabbit)
Estimable Member Registered

@will99

Thank you for the update, I posted myself when you first raised the issue. I am very similar to you, no profit in the first year, so no CMS due. I will be reassessed in April and I have 9300 of rental income, and 2500 of mortgage costs. Previously I would have been taxed and CMS worked out on 9300-2500, but now the mortgage relief is all but removed it is the full amount. My ex getting 12% of 9300, the tax man 40%, other costs such as insurance, gas cert/service and any faults etc, and it really does mean that it is not worth doing. If interest rates were higher, it would be a no brainer to sell the house and put the money in an investment somewhere. Even so, when I get my assessment and the ex goes for a reconsideration, as she always does, it may just push me to sell anyway.

I appreciate you following this through and hope that something comes from it.   

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Posted : 05/03/2021 4:22 pm
Bill337
(@bill337)
Famed Member

found this info:

 

The first category is income from land or property – this includes property abroad. Typically, this is rent (see Part 3 of Income Tax (Trading and Other Income) Act 2005 for a full list). If a NRP is receiving rental income there are a couple of things to remember. First, as with tax, when calculating unearned income the CMS first remove the costs incurred running the property - such as maintenance and furniture. Second, if a NRP rents a room in their primary residence, he has a lodger, the first £7,500 is not taxable and would not fall within the CMS assessment.

https://classlegal.com/news/challenging-a-nil-assessment-by-the-child-maintenance-service-part-two

 

 

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Posted : 05/03/2021 6:29 pm
Will99
(@Will99)
Estimable Member Registered

@bill337 Thanks for that, could be useful in the appeal

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Topic starter Posted : 05/03/2021 10:13 pm
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