staff mortgage benefit in kind tax - am I calculating it correctly?

user1168934

I am looking to remortgage. My wife works for a bank that offers staff mortgages at the base rate. We saw their mortgage broker yesterday. The broker told us that the benefit in kind tax would be £20.18 per month (calculated on his system) but when I try to calculate it I am getting £32.08 per month.
Below is how I am calculating it, can someone tell me where I am going wrong?


Mortgage required £110,000
Wife (on staff mortgage will get base rate 0.75%) = £53,000
Me (on normal rate) = £57,000
Actual rate published by HMRC = 2.5%
wife's tax band is 20%.



Calculation:
2.5% - 0.75% = 1.75%
1.75% x 110,000 = 1925
20% x 1925 = 385 per year = 32.083 per month.


As you can see I am getting £32.08 per month. I am puzzled how the broker got £20.18 per month.
Any ideas?

TrickyDicky101

I presume that the rate payable by her is a blend of the staff rate + the normal customer rate. What is the normal customer rate - is it around 1.4%?

ceh209

It will be calculated on the average rate for the loan.

e.g. £110,000 * 2.5% = £2,750 'official' interest
Actual interest (implied rate at an average of 1.4%) = £1,539.20
Difference @ 20% = £242.16 = £20.18 per month

I get this to work if the 'normal' interest rate on your bit is 2%, is that right?

user1168934

thanks for the replies.
The normal customer rate was 1.97%.


I still don't understand how guys got £20.18 ... sorry I am dumb

ceh209

user1168934 wrote: »

thanks for the replies.
The normal customer rate was 1.97%.


I still don't understand how guys got £20.18 ... sorry I am dumb

You have to pay tax on the difference between the amount of interest you actually pay, and the amount of interest calculated based on the official HMRC interest rate.

The HMRC official interest = £110,000*2.5% = £2,750
Your actual interest = £53,000*0.75% = £397.50, plus £57,000 * 1.97% = £1,122.90, total £1,520.40
Difference between the 2 = £1,299.60
Tax @ 20% = £245.92
Divide by 12 to get monthly = £20.49

I'm getting slightly different to the £20.18 you were given, because I'm not taking into account that you will be making repayments, so the actual loan balance will be slightly lower. It's usually done on an average of the loan at the start of the year and the end of the year.

user1168934

ceh209 wrote: »

You have to pay tax on the difference between the amount of interest you actually pay, and the amount of interest calculated based on the official HMRC interest rate.

The HMRC official interest = £110,000*2.5% = £2,750
Your actual interest = £53,000*0.75% = £397.50, plus £57,000 * 1.97% = £1,122.90, total £1,520.40
Difference between the 2 = £1,299.60
Tax @ 20% = £245.92
Divide by 12 to get monthly = £20.49

I'm getting slightly different to the £20.18 you were given, because I'm not taking into account that you will be making repayments, so the actual loan balance will be slightly lower. It's usually done on an average of the loan at the start of the year and the end of the year.

Thanks very much mate, much appreciated.