In respect of the ISA funds that I have set aside for paying off the interest-only mortgage on the property that I let out (and on which I receive income from the profit thereon which is assessed for CM), I am currently arguing with the CMS that these funds should not be included in a notional income calculation on two grounds :-
a) Surely the choice I made ages ago on how to repay my mortgage (i.e. invest elsewhere rather than pay down the mortgage directly) should not have an impact on the CM amount I am required to pay today. I.e. to include these funds in a notional income calculation is unfair on the basis that had I chosen a repayment mortgage instead then these funds would not exist at all. I would have had a smaller mortgage and no ISA funds, so I am saying that the CMS should balance the ISA asset value against the mortgage debt value that they are designed to repay.
b) I am also arguing that para 34005 bullet 2 at the following link essentially means that 'If the NRP has an asset which is essential to an arrangement or entity from which the NRP receives an income, and that income is assessed for CM, then that asset is exempt from a notional income calculation'. Not sure if any of you agree with this interpretation ? https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1012626/volume-3-variations.pdf
I acknowledge to the CMS that I cannot actually prove that the ISA funds are for repaying my mortgage, and equally I understand that they cannot simply believe me just because I say so. I.e. that this is essentially a judgement call on their part which, due to the potential financial impact on both sides of the CM case, they need to take care in coming to a decision on. An approach that includes the asset in the calculation simply because there is no proof tying it to my mortgage is an approach that is biased against the NRP, and will surely lead the CMS to unfairly penalise NRPs in a lot of cases. For my case, I have suggested that my open and full financial disclosure of every asset I have, and the fact that they have sought and received 3rd party verification of the truthfulness of my declarations, demonstrates my integrity and honesty and should help them to make a fair judgement call re my ISA funds.
However most of all, for me it demonstrates just how full of issues and perhaps unfit for purpose a lot of the CMS processes and calculations are. My view of the notional income variation is that it should really only be used when there is evdience that the NRP is deliberately reducing their income, and there is no evidence whatsoever of that in my case.
@Will99 Hi Will99, keep fighting them mate, seems so unfair. How did you get on the pension issue, are they still trying to screw you over on that. I spoke to the most aggressive and unhelpful clown there yesterday, who could not a simple question. Seriously, these poorly trained people can have a say on how we sort our finances for our future is a mystery mate
@jgdad I'm waiting to hear back from the FIU on both issues - pension contributions and the notional income issues that they have ruled against me on. Not sure if it is worth even talking to them because they have already initiated the MR and that is not dealt with by the FIU. However I think they have made mistakes and I would ideally like them to admit that - that might help me in the MR as I am sure the MR would look for compelling reasons why the FIU decision should be overturned and an admission of mistakes by them would suit. I have two threads running on here - one for each issue - but they are both part of the same story.
@will99 - can you cancel your ISAs (I know there will be penalties, but is it worth it considering the CMS assessment) and instead transfer that money into an additional pension? That way CMS leave it out of their calculation and you can then use that pension to pay off the mortgage (which attracts tax and NI relief, with the added advantage that 25% of the pension withdrawal is taken tax free) once you are over 55? Obviously, I am not qualified in any way financially, so if you consider this, get professional financial advice to make sure you are aware of any issues, but it may sort out your issue with CMS.
@actd That is a very good idea that has been staring me in the face without me thinking of it !
The only thing I would have to be bear in mind is breaching the 'acceptable pension provision' calculations (i.e. para 36020 of the variations document), though I know I have some scope before that happens.
Also that I have enough of my allowed 25% to take this value back out again without impacting my other plans for the 25% lump sum withdrawal.
But yes a very good idea - thank you !
My annual review is in 2 days, so they may want to see the ISA balance as at that date and calculate notional income accordingly, so not much time for me to organise this suggestion. However I understand that it is only earned income that has to change by 25% in order for a new calculation to be done for the current year - a change in any other income (such as notional income) can trigger a current year recalculation regardless of how much it changes by. So I could tell CMS of a changed asset valuation (and thus notional income calculation) whenever I have organised putting the ISA money in to a pension.
@Daddyup @Will99 Hi I’ve been reading this thread but haven’t found an answer to my questions so hope you don’t mind me butting in. If I have savings (e.g. for a deposit for a house) exceeding £31,250 but those savings are within a) a current account b) a stocks and shares ISA and c) a cash ISA, are any of these treated separately? Are the two ISAs considered as one “type” of asset? Or are the current account and cash ISA considered as one “type”? Also, if the ISA is a product of my earnings after payment of CM, then is it true (and fair) that I then have to pay another 8% of the ISA? In this scenario I’m paying CMS twice for the same money.
Finally, if I inherit a house and this inheritance is shared between two siblings, and my share is worth more >£31,250 when does this become my asset? As soon as I inherit it? When the house is sold? It seems logical to allow a sibling to receive my share of the house and then he can just transfer me my share in instalments and then I can overpay my mortgage with those instalments…
To take your queries in turn :-
I believe that a), b) and c) are all treated separately for the £31,250 threshold. I.e. if they each have £30k in them then no notional income is due.
I think there is a provision which says that if the asset is purchased from income that has already been assessed for CM, then the asset is exempt from the notional income calculation.
Regarding your inheritance of a house, I would have thought it becomes your asset when the deeds are in your name. However the notional income provisions also include assets that are 'owed' to you where there is a reasonable expectation that you will be (or able to be) given these assets 'soon' (or something along those lines). I.e. perhaps if you are the beneficiary of the estate but the executor has not distributed the assets yet, then these may be caught.
Yes I agree your suggestion about getting the money in instalments and using them to pay off your mortgage is a good idea. The notional income provisions do say that if a property is the asset and it has a mortgage on it, then the asset value is the property value less the mortgage debt. However I suspect you are referring to a cash asset (after sale of the property) and using that in instalments to repay your own mortgage - in which case yes that sounds a good idea to avoind having over £31,250 in one place.
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?
I'm sure I've seen a document about this on here, but can't remember where it is - can anyone else remember it?