Staff mortgage.....please help!

Wauwa01

Hello, I used to have a very nice deal through Woolwich where I paid 0.18% above base rate and I was very happy with this. I was happily married, had a child, mortgage was fine and up to date. I wanted to increase my mortgage and have my husband's name added for financial security should anything happen to either of us. I was talked into going for a staff mortgage through the staff banking advisers at the Bank where I work. They told me I would pay base rate, however, I would need to declare this to the tax office and pay around an additional sum of £20 to £30 per month in tax as the mortgage was a benefit in kind.

So I took out the staff mortgage for £79,000, I was earning around £20,000 a year at the time. Shortly afterwards, I had a second baby and my husband walked out leaving me with 2 children and the mortgage to pay on my own. Everything's been fine but I have had to reduce my working hours due to the cost of childcare and now only earn around £12,500 per year as a result.

I got a letter through yesterday from HMRC advising that they were changing my tax code to 94L as a result of my staff mortgage. I thought there must have been some mistake so I phoned them and the confirmed that this is correct and that there arrears that I must pay - however, they set up the tax and have been collecting it from my earnings. The lady I spoke to said that she would have a look and see if they could spread the arrears over 3 years but the computer said no as my income was so low and so my only option was to pay it over 1 year. You can imagine how tight my budget is and I simply can't afford to pay this amount of tax.

I have tried phoning Citizen's advice all day but they won't even pick up the phone.

I phoned HR at the Bank where I work and they have advised that this has come about as HMRC have decided that, although the base rate for mortgages is 0.5%, they have it as 4.75% and want all staff mortgage holders to pay the difference between 0.5% and 4.75% for the last 2 or so years and that is how the arrears are so high. Obviously I can't move my mortgage now as my income is so low, I can't afford to increase my hours as it will be eaten up by this high rate of tax and I also need to pay out childcare for my 2 children and its just not going to work. I said to HR my only option is to give up my job and sell my house and she said "I'm Sorry!"!!!!!!!

What can I do, where do I go? Apart from give up my job and leave the 3 of us homeless, what can I do??

kingstreet

The interest payable on a mortgage of £79,000 at 4.75% is £3,752 a year. At 0.5%, this falls to £395. The benefit in kind to you is therefore the difference, £3,357. If this is taxed at 20%, the tax you pay is £671 per year. Over two years, the total cost is around £1,350.

Anything you have paid (the £20 to £30 per month you mentioned) is deductible from what you owe.

Once you have established what you really owe HMRC, you can move on to the next bit. How to pay it.

Obvious suggestions, like your ex-husband and claiming all the tax credits and other benefits you might be entitled to, I'll have to leave to you?

The only other idea I have is asking your employer to convert your mortgage from repayment to interest-only for six months to reduce what you pay them, while you settle with HMRC.

For example, a £79,000 mortgage over (eg) 20 years costs £346.72 per month on repayment. On interest-only it would fall to £32.92. The short-term adjustment would therefore give you £313 per month, more than enough over six months to repay HMRC.

At the end of the six months, you return to repayment, with a small increase in monthly payments to make up for the capital you haven't paid. This is not a solution for everyone, but in the kind of hardship you describe it appears a reasonable request of an employer who must perhaps accept some of the blame for your predicament.

ey143

So how did this all end?

kingstreet

The OP hasn't been back since 27 May, so I doubt we'll find out the conclusion.