Help! How to work out beneficial loan tax

whist

Hi all,

I've currently got a mortgage with HSBC (SVR -0.69) which is due to move to SVR in August .

I'm looking at various options and one is to get a staff mortgage ( BOE BAse rate). I know this will incurr a BL tax so I'm trying to work out what is best.

Go for staff mortage ( cost will be base rate + solicitors fees) or go with another lender ( tracker unless i can get fix) Mortgage required is roughly 175K. £600/m repayment. Roughly 88% LTV which may incur higher rates me thinks. I also have some savings of around 10K which I am thinking of putting in the NS&I account as per the latest MSE tip part of which I was actually going to put in this years ISA but was waiting for better rates to come through.

I'd love to fix but given the current climate ( Soverign debt crisis and negative outlook generally) I suspect BOE IR wont go up by too much even though inflation is shooting through the roof . That's my thinking and I managed to make a good call 2 years ago when I decided not to fix and instead went for the best tracker i could get.

Can someone help work out the cost of the BL on top of any staff mortgage.Please help.

opinions4u

IR official rate is 4.00%.

If your staff rate is 0.50% then you will be taxed at your highest rate on the difference (3.50%).

e.g. £175k x 3.5% = £6,125 benefit x 20% tax = £1,225. In other words, your tax bill should rise by £100 a month.

If only part of the loan is on 0.5% and the rest on a public deal, the average rate applied to your loan would be used. e.g. half at 4% and half at 0.5% = average rate of 2.25%. £175k x (4%-2.25%) = £3062.50 x 20% = £612.50 a year.

whist

opinions4u wrote: »

IR official rate is 4.00%.

If your staff rate is 0.50% then you will be taxed at your highest rate on the difference (3.50%).

e.g. £175k x 3.5% = £6,125 benefit x 20% tax = £1,225. In other words, your tax bill should rise by £100 a month.

If only part of the loan is on 0.5% and the rest on a public deal, the average rate applied to your loan would be used. e.g. half at 4% and half at 0.5% = average rate of 2.25%. £175k x (4%-2.25%) = £3062.50 x 20% = £612.50 a year.

Thats great thanks. I'm a higher rate tax payer so we are looking at 2500/annum i.e an extra 200/month. Ummh. £800/month is roughly what I pay now so this is would probably be a better deal since I cant get the same deal I have now for love nor money. Just need to work out whether it would be a good deal if IR goes up to 2%.

opinions4u

whist wrote: »

Thats great thanks. I'm a higher rate tax payer so we are looking at 2500/annum i.e an extra 200/month. Ummh. £800/month is roughly what I pay now so this is would probably be a better deal since I cant get the same deal I have now for love nor money. Just need to work out whether it would be a good deal if IR goes up to 2%.

You'd probably find that the official rate went up by a similar amount, so the differential would be more or less the same. (This isn't guaranteed, and it certainly hasn't fallen by the 5% BofE rates fell by since 2008).

When I worked for Halifax, their colleague discounts site had a specific calculator built in to it to work out the tax liability.

whist

I have been looking into the various options available to me at 85% -90% LTV

I think the best deals @ 27 years repayment currently are

1. Mortgage from employer
- £175k * 0.5% + BL tax - £175k x 3.5% = £6,125 benefit x 40% tax = £2,450. With this I am paying 2450 from my pre-tax allowance I think . Fees - Solicitors fees only (300k ish). No ERC

This will work out to be - 535 + 230 (BLT) ish = 765.


2. First Direct
Life Tracker
85% LTV Fee £499 3.49% + BR for the term of the mortgage currently 3.99% .
Fees - £499 arrangement + 149 closure . NO ERC. Valuation fee may not be payable since currently with HSBC.



Other than the fact that if i leave the bank i will move to SVR and I plan to be at the bank for at least the next year I cant see much difference. My slight concern is taking the bank loan means if IR go up and I leave, I may miss the boat on good deals but who knows mortgage rates may come down with competition :laugh:.

I think one important thing is I will be paying the whole mortgage from post_tax allowance with FD but with employer, I will be paying 230 from pre tax ( at 40% ) so possibly better ?

I may be slightly confused on this though so help needed in making final decision. Any other pros and cons not thought off would also be helpful

I am not considering fix because they are just too expensive at 85 - 90 %LTV.