Benefit in kind tax on a staff mortgage

huddsyouth

Hi

I have a joint mortgage with my wife. I work for a high street bank and she works elsewhere. We have bought a property for 170k.

We have 152k mortgage on the property and around 75k of that is on a staff mortgage of 0.5%

HMRC are however wanting to take extra tax on the whole 152k as opposed to just the 75k which is benefit in kind as they say they cant distinguish between the amounts. Surely I should only pay tax of this nature on the amount i am benefiting from. Any ideas where i stand and what I can do

thanks

Huddsyouth

kingstreet

Doesn't the P11D supplied by your employer tell HMRC what the benefit in kind is, so your tax code can be reduced accordingly?

Thrugelmir

huddsyouth wrote: »

HMRC are however wanting to take extra tax on the whole 152k as opposed to just the 75k which is benefit in kind as they say they cant distinguish between the amounts. Surely I should only pay tax of this nature on the amount i am benefiting from. Any ideas where i stand and what I can do

This is correct. The BIK applies to the whole mortgage amount. Has been this way for decades so nothing new.

Sometimes cheaper to source a mortgage from a third party.

TrickyDicky101

huddsyouth wrote: »

Hi

I have a joint mortgage with my wife. I work for a high street bank and she works elsewhere. We have bought a property for 170k.

We have 152k mortgage on the property and around 75k of that is on a staff mortgage of 0.5%

HMRC are however wanting to take extra tax on the whole 152k as opposed to just the 75k which is benefit in kind as they say they cant distinguish between the amounts. Surely I should only pay tax of this nature on the amount i am benefiting from. Any ideas where i stand and what I can do

thanks

Huddsyouth

Do you mean that £75k is on the Staff Rate and the £77k balance is on another product rate (say 5% or whatever)?

If so, are HMRC using a blended rate rather than calculating the full benefit as £152k @ 0.5%?

huddsyouth

HMRC are calculating the whole amount is on 0.5%. When actually roughly half is on 5.39%

amnblog

Like most HMRC rules the beneficial loan is unnecessarily complex as set out in EIM26109


It short it says


a single loan may:

• be represented by two or more accounts and/or
• bear interest on different segments at different rates and/or
• be secured on two or more assets.

In spite of all these factors, if the agreement under which it is made and accepted is an agreement for a single loan, it will remain a single loan and be treated as such.


This sounds to me like what Thrug put more eloquently


'The benefit in kind applies to the whole mortgage amount'

TrickyDicky101

Whilst the BiK applies to the whole loan amount, the actual rate of interest compared to the official rate is effectively a blended rate (as it is determined based on cash flow rather than from the rate itself).

If you are getting charged a BiK based on the entire loan amount at the staff rate then something has gone wrong and you should contact HMRC to correct. Quite possibly, your payroll department have completed your P11D incorrectly - so you may need to address this with them.

bowlhead99

HMRC are calculating the whole amount is on 0.5%. When actually roughly half is on 5.39%

TrickyDicky101 wrote: »

If you are getting charged a BiK based on the entire loan amount at the staff rate then something has gone wrong and you should contact HMRC to correct. Quite possibly, your payroll department have completed your P11D incorrectly - so you may need to address this with them.

I'd agree with that. What they should actually be doing is looking at the blended average rate you pay on the whole loan from your employer and seeing how that stacks up with their 'official' rate. They shouldn't be assuming that every penny was borrowed at 0.5%.

If your own non-staff, 'open market' rate is below their official rate then it would perhaps have been worth not taking the cheap finance and dragging the whole big loan into the scope of the rules in the first place. An example of where it could go wrong:

Borrow £90k at 2.5% normal rate = £2250 a year. Then borrow £10k at 0.5% special rate = £50 a year. Total cost £2300. The whole £100k at their official rate 3.5% = £3500. They would say you have borrowed through an employer special rate to get a sweet deal at a cost of only £2300, compared to 'fair' official rate of £3500, so you owe us some tax.

Alternatively if you had borrowed the £10k at 2.75% with another provider for £275 interest cost, you would be paying £2250+275 = £2525 total. A blended average rate of 2.525%. It is more cash out of your pocket to mortgage providers, but HMRC are not interested as you're not on any employer special rate to get a sweet deal, so they don't have a benefit in kind to chase down. You have a higher rate headline this way but may actually be better off if you had shopped around and gone with a third party than took the tempting cheap cash from your employer. I think this is what Thrugelmir was alluding to, right?

But either way if HMRC in this situation are saying you borrowed the full (e.g.) £100k at 0.5% and saying that is much cheaper than £100k at 3.5% and they want the tax on it all - someone has made a mistake somewhere.