Benefit in kind?

dark_knight_2

Hi all,

I work for a bank that offers staff loans at the BOE base rate. But i've been told that if i took one it means my tax code would be hit for 'benefit in kind'. anyone able to tell me how much of a hit i could expect to take?

BoGoF

First question - how much would the loan be for ?

fubar4164

The benefit to you is the cost that the bank incurs in making the loan to you. I don't specifically know how banks work, but I would guess that if the bank has to pay interest to the entitity it borrows from, at a higher rate than you are being charged, you will have to pay tax on the value of the interest that the bank incurs on your behalf (i.e. the difference between the rate you pay and the rate the bank is paying). But if it costs the bank nothing, there is no benefit to you.

BoGoF

fubar4164 wrote: »

The benefit to you is the cost that the bank incurs in making the loan to you. I don't specifically know how banks work, but I would guess that if the bank has to pay interest to the entitity it borrows from, at a higher rate than you are being charged, you will have to pay tax on the value of the interest that the bank incurs on your behalf (i.e. the difference between the rate you pay and the rate the bank is paying). But if it costs the bank nothing, there is no benefit to you.

Not quite. The taxable benefit is the difference between the amount of interest actually paid and that that would have been paid using the official' rate of interest. The official rate of interest is determined by HMRC and from 1 March 2009 will be 4.75 per cent. There are various exemptions, small loans for example.

noh

BoGoF wrote: »

Not quite. The taxable benefit is the difference between the amount of interest actually paid and that that would have been paid using the official' rate of interest. The official rate of interest is determined by HMRC and from 1 March 2009 will be 4.75 per cent. There are various exemptions, small loans for example.

Info here Chapter 17:-
http://www.hmrc.gov.uk/guidance/480.pdf

dark_knight_2

thanks all for the replies so far, the loan would be for 6,500, and the current BOE rate is 1% does this mean i'd incur another 3.5% through tax?

BoGoF

Say for example the amount of interest you pay your employer is £100 over the year but using the official rate it was £500, your taxable benefit is £400 and you would pay tax on the £400. So if a basic rate taxpayer would be at 20% (£80) or higher rate 40% (£160). All in all would be a good deal seeing as the cheapest personal loan rate you could get would be no less than 7%

cte1111

Cheap loans from an employer are only taxable if they are over £5,000. So if the loan is for £5,000 or less, then there is no benefit, even if the loan is interest free. So might be worth looking at a loan for this amount, then find an outside loan for the rest.