Benefit in kind - loans/mortgages

iazms

Hi All,

How is the tax worked out for a benefit in kind. eg 100,000 mortgage at preferential rate of 5.5% compared to the benefit in kind rate of 6.25%

How is the actual maths worked out?

TIA

morgani

The official rate is still at 5% for 2006/07.
(Please feel free to correct me if I'm wrong)

See HMRC website (link below)
http://www.hmrc.gov.uk/rates/interest-beneficial.htm

Therefore under these rules it is not a beneficial loan. The 07/08 rates will be released around april 08 so you can then compare this years then.

Details of how to calculate are found here (this is the normal averaging method which often works out more beneficial to most people)
http://www.hmrc.gov.uk/manuals/eimanual/eim26210.htm

the alternative is the precice method
http://www.hmrc.gov.uk/manuals/eimanual/eim26230.htm

Ems!

The link posted by morgani shows on the top half, the average rate for 0607 which was 5%, down the page shows the actual rates, and here it can be seen that on 6.4.07, the rate went up to 6.25%. I had actually thought it had gone upmore than this but am sure the hmrc website is right!!

Anyway, assuming the loan is current, you will be looking at 07/08 which means that there is a small BIK.

You can calculate using both of the methods then use the most beneficial / However, if averaging is most beneficial , HMRC are within their rights to make you use precise method ( though in practice this won't happen that often).

Your payroll dept should calculate the BIK and give you a P11D after the y/e.

hth

iazms

Hi Thanks so much for getting back to me. According to that same link you posted above the rate is 6.25 for April 07 onwards.

So just to work an example through for £50,000 mortgage:

(balance beginning + balance at end) / 2
(£50,000 + £49,042) /2 = 49521

49521 * 0.0625 = 3095

deduct the interest paid in the year
3095 - 2726 = 369

Cash equivalent of benefit = £369

So does that mean, the actual loss to me is the tax I have to pay on £369. ie for 20% band I would be £73.80 worse off?