Employee mortgage and tax implications

Glastoun · 24 July 2014 at 9:17PM

I can get an employee mortgage that is (I think) base rate plus 2.25% (so 2.75% at the moment). Regardless of whether this is a good deal, what are the tax implications given that the HMRC rate for such loans is 3.25%? How much would I have to pay in tax per year?

I'm a basic rate taxpayer, repayments would probably be £750 per month with £90k outstanding. Mortgage would be offset, but if I had to set a time period for repayment then probably 15-20 years.

What would happen when the base rate, and then presumably HMRC's rate, rises?

Thrugelmir · 24 July 2014 at 9:56PM

You'll pay tax on the notional benefit as your actual interest rate is lower. So say for example you pay £500 less in interest (3.25% - 2.75% = 0.5% * £100k = £500). As a basic rate taxpayer you'll pay 20% on the benefit i.e. £100.

Glastoun · 29 July 2014 at 4:29PM

Would this extend to any interest payment reduction caused by savings that were in the offset accounts? So if our offset savings meant us paying £500 less interest in a year, would the total tax bill in the example given then be £200?

Employee mortgage and tax implications

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