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The child maintenance capital loophole explained

3 min read

The child maintenance capital loophole explained

If you believe that you should receive a higher amount of child maintenance, you may have legal recourse.

Many people remain unaware that the child maintenance rules have changed to account for parents reducing their income for tax purposes and living mainly off capital assets.

Here, our family team explain when capital can be considered by the Child Maintenance Service (CMS).

 

The CMS capital loophole

When the resident parent applies to the CMS, an initial assessment is done on the basis of the paying parent’s gross income. The CMS uses their tax returns to calculate average weekly earnings for the most recent tax year. Any ‘unearned income’ (that from savings or investments), ‘overseas income’ or assets owned aren’t taken into account.

This allows for some wealthy parents to get away with paying little to no child maintenance.

The 2017 case Green v Adams highlighted the inadequacy of the child maintenance rules in this respect. The father had assets worth over £5m but declared no taxable income, aside from a small pension. This meant that a CMS calculation obliged him to pay only £7 child maintenance per week, despite being a millionaire. The judge in this case rightly labelled the state of the law at this time as “most disturbing”.

 

Regulatory changes

Regulatory changes in 2018 focused on how to calculate child maintenance in cases with ‘complex earnings’. The change aimed to help circumvent the issue of ‘capital rich, income poor’ non-resident parents falling through the cracks and paying the bare minimum rate of child maintenance where they have a low taxable income.

Since 2018, where the paying parent’s capital exceeds £31,250, a notional annual income of 8% of the value of their assets can now be ascribed for the purpose of child maintenance. Such assets include money, land (unless the land is the primary residence of the non-resident parent) and some stocks and shares. Where an asset is subject to a mortgage or charge, a deduction is made to the value for any amount owing. See a full list of the asset types that can and can’t be included.

 

The onus is on you

It’s important to note that ‘notional income’ can only be taken into account if the resident parent applies for a variation of maintenance. The onus is therefore on the recipient of the child maintenance to apply to the CMS directly if they believe that the paying parent should be contributing a higher amount of child maintenance based on their capital wealth.

However, some experiences with the CMS haven’t always been easy — and there may be other ways around ensuring that a child’s financial needs are being met. Further financial claims can arise under Schedule 1 of the Children Act 1989.

If you need advice around your options for varying the amount of child maintenance you receive, talk to our award-winning family law team by completing the contact form below.