tax on benefits in kind...

torizia

Hi all,

I'm very fortunate to get a staff mortgage, which means I only have to pay base rate (currently 0.5% interest). However, this means that I am liable to pay tax on this as a benefit.

It states on my company intranet that a letter will be sent to HM revenue to inform them that I am receiving this benefit, in order for the tax to be charged accordingly. However, I am not sure whether this means that my income will be taxed at a higher rate, or whether I'll receive a letter at the end of the year demanding a repayment?!

Please can anyone explain how benefits are taxed!

Many thanks

Toria

opinions4u

Usually via an adjustment to your tax code. Your employer will provide a P11D confirming the value of any benefits in kind.

If this isn't currently reflected, you could find that your tax code for next year effectively charges you the tax for this year and next year, so prepare for a reduction in take home pay.

Additionally, it is possible for a combination of mortgage, car, bonus etc to push you in to higher rate tax if you're not already there.

(If your income, including value of benefits, is less than £8,500pa then BIK are tax free. If this figure had kept pace with inflation it would now be around £40k. So another example of a stealth tax creeping up on people).

ceeforcat

(If your income, including value of benefits, is less than £8,500pa then BIK are tax free. If this figure had kept pace with inflation it would now be around £40k. So another example of a stealth tax creeping up on people).

Unless the benefit is a company car, of course - one that usually trips people up.

mlz1413

The HMRC Offical Rate of Interest rate is 4.75% to 5/4/10, it reduces to 4% for 6/4/10 to 5/4/11.

So your loan should be calculated on on the ORI less paid; i.e. 4.75 - 0.5 = 4.25%

Say you owe £100,000 the calculation BIK would be:
£100,000 x 4.75 - 0.5 = 4.25% = 4,250 benefit
taxed at 20% =£850 tax payable for one whole year.

If you pay off the capital the average will be used
ie 100,000 at 6/4/09
less 95,000 at 5/4/10
add together and divide by 2 = £97,500 x 4.25% x 20% = £828.75 tax for year.