Should we switch to a public rate insted of employee deal?

hanb

Hi all,


Hoping for some advice on a topic I've previously had help on but have gone back to being confused!


OH has just got a promotion :j but it's caused confusion with our mortgage as we have an employee deal and he's now tipped in to the higher tax bracket so we're not sure whether it's still the best option and I can't work out how to get to a comparable rate that includes the tax implication to check against public rates. I've looked on the HMRC page but I'm getting stuck because we have 2 mortgages which makes it less straight forward as I know they don't strip the top up mortgage out for tax purposes.


Figures:


Employee mortgage (BR so 0.5%) - £141k
'top up' mortgage (2.69% fixed until 2021) - £33k


With the house value around £300k we could get a fairly good fixed rate but I can't get to the point where I have a rate to compare it to as we stand at the moment. Will he now be taxed 40% on the BIK for the whole amount? Seems a little unfair to double the tax for tipping £1k over the threshold.


Anyway, if anyone can help or point me in the right direction I'd be very grateful - my brain has given up I think!


Thanks in advance

YHM

BIK isn't my area of expertise, but I would expect that would only be charged against the preferential proportion, not the full mortgage balance.

Based on your LTV, you could comfortably switch to a sub 2% Fixed Rate without any charges, which would extinguish the concerns about BIK biting you in the backside and also alleviate any concerns about the BR increasing (which would also impact on BIK).

Speak to an accountant about the BIK implications as they will guide you on the costs etc.

BakingC

BIK are added to income to get the your total taxable "income" so depending on whether £1k over the threshold is base salary over threshold or including the BIK will determine the answer.

What was determined as the BIK for last year (Tax code notification should give this or employer should be able to say what they put on the P11D). If Income is now in 40% then BIK ontop then all BIK will be taxed at 40%. (benefit is not 40% of the mortgage value though).

If Income + BIK is now 40% rate only the amount in the 40% tax bracket will be taxed at 40% the same as normal income.

I believe the BIK would be the difference between the yearly interest charged at base rate (0.5%) and the yearly interest charged at HMRC recommended rates (2.5% from 01/04/17).

e.g. BIK - £141K * 2% * 40% = £1128 extra tax payable (would need to add NIC I believe aswell) ~£1500 including NIC (assumed all at 13% but some would be at the reduced rate if it is in 40% tax bracket)

So "interest" you pay is at 0.5% which is £705 add the £1500 divide by the mortgage value gives interest of roughly 1.6% so if you can beat that then it might be worth it but would need checking with the exact amounts.

Then again I might have completely misunderstood the HMRC website / my own payslips with BIK.

hanb

Sorry both, I lost the thread! Thanks so much for your replies.

I think with the fact that interest rates are only likely to go up over the next few years, we might be better off just switching to a public rate now and 'locking in' a decent rate!

At a quick look we can get a mortgage at about 1.7% fixed for a few years so that seems sensible and then we don't have to worry about BR/HMRC rate and tax codes etc! Lots more to look at