Long Service advance ie 8.5K to help buy a house Beaware

Cat695

Well Just wanted to warn people about this

currently you can borrow (interest free) from the MOD 8.5k to help in buying a house

However what you may not know is this

If you borrow this money you will be on a higher tax band than someone who hasn't so you pay tax on an extra 730 pound

My tax band is currently 603L (as everyone should be under 65 and working)

However if you have borrowed this money your tax band will be something like 531L

Just thought I'd warn you...as one of the guys queried today as to why he has a different band to everyone else....and this is what the tax man told him

Trying_to_be_good

It's not a different tax band (i.e. 20% to 40%), but the loan is a taxable benefit and so you have to pay tax on it. That's why your tax code has changed, so they can get this extra tax directly through PAYE rather than you have to pay it in a lump sum at the end of the year.

Cat695

But its something people are not aware of (two guys where I work didn't realise)

What I don't know is how long your tax code stays different....?

Renovatio

It is £720 that you are taxed on, NOT £700 additional tax per year.

Cat695

Renovatio wrote: »

It is £720 that you are taxed on, NOT £700 additional tax per year.

Yep I guess my explanation was not as clear....

EmmEve

Cat695 wrote: »

My tax band is currently 603L (as everyone should be under 65 and working)

Thats not the case for everyone. There are all sorts of different tax codes people can be on for various reasons. Its the main one for the majority of people, but not everyone. It depends on many things from your income to benefits in kind, to whether its your only job or not.

Cat695

EmmEve wrote: »

Thats not the case for everyone. There are all sorts of different tax codes people can be on for various reasons. Its the main one for the majority of people, but not everyone. It depends on many things from your income to benefits in kind, to whether its your only job or not.

What I'm trying to point out here is not the tax code but that if you take the 8.5k off the MOD to buy a house you end up paying more tax than someone who doesn't take it!

and will continue to pay tax on it until it is paid back

MOST soldiers are on the tax code 603L

Alias_Omega

What would the interest be on a loan of the same amount, over the same period.

Need to work that out over tax paid, and work out which is more beneficial.

Both have good and bad points.

Cat695

Alias_Omega wrote: »

What would the interest be on a loan of the same amount, over the same period.

Need to work that out over tax paid, and work out which is more beneficial.

Both have good and bad points.

yeah your right it would be worth doing the sums

But i just wanted to point this out as I get the feeling (as two of my mates thoughts who have done this) that the loan was with no ties

IE you borrow 8.5k and pay back 8.5k....when in reality even though you pay the MOD back 8.5K you give the tax man extra because of having the money

and by the looks of it ontop of the 70 ppm he's paying back the MOD he's also paying an extra 30 ppm in tax......but its hard to work out as we are on different pay bands (no one else same rank same pay band as him)

frugal_matelot

For info I took LSAP 12 years ago. The truth is it is only classed as a beneficial loan by the HMRC until you owe less than £5000. After this time all you pay is the insurance which is a couple of pounds a month. I know this because I queried why my tax code was different to a friends in exactly the same situation as me. His was higher than mine. When I contacted the HMRC they changed my tax code back to normal because by then I only owed a couple of thousand. I also got £450 back by rebate. Apparently its the MOD's responsibilty to inform the HMRC when it gets below the £5000 threshold but in my case they didn't. Hope this helps.

Check out this topic on the HMRC website:
http://www.hmrc.gov.uk/employers/ebik/ebik3/beneficial-loans-08.htm

Cat695

frugal_matelot wrote: »

For info I took LSAP 12 years ago. The truth is it is only classed as a beneficial loan by the HMRC until you owe less than £5000. After this time all you pay is the insurance which is a couple of pounds a month. I know this because I queried why my tax code was different to a friends in exactly the same situation as me. His was higher than mine. When I contacted the HMRC they changed my tax code back to normal because by then I only owed a couple of thousand. I also got £450 back by rebate. Apparently its the MOD's responsibilty to inform the HMRC when it gets below the £5000 threshold but in my case they didn't. Hope this helps.

Check out this topic on the HMRC website:
http://www.hmrc.gov.uk/employers/ebik/ebik3/beneficial-loans-08.htm

Thanks for that I will tell the lads but I know one of them only took it out last year