Staff Mortgages and Benefits in Kind

chambta

I'd be grateful if any tax experts could tell me which is the best way to go.

I work for a high street bank and an able to remortgage, entirely fees free, to my employer on a fixed rate of 5.19%. However, I will be taxed on this as a benefit in kind. As a basic rate tax-payer does anyone know exactly what this will cost me as I believe your tax code gets amended.

My other alternative is to take an identical fees free deal from my local buillding society which costs 5.49%.

Simple question.....which one is better?

dimbo61

Without knowing how much your mortgage is going to be we cant work out
how much you would save !!
As you have the two offers from your employer and the local building society
you know the difference.
For the amount you would save is it worth the trouble ??
TAXED AS BENEFIT IN KIND
If you leave or lose your job do you have to remortgage with someone else!!
Questions you must ask yourself GOOD LUCK

Cardinal-Red

On a basic level, you will be charged tax at your marginal rate on the difference between what you pay, and what you would have paid had the circumstances been the same except for your employment with them.

This is however VERY basic and the fact that your employer's business is money lending anyway could also be relevant.

I am sure your HR department will be able to give you the full details of it - but as Dimbo says, to calculate the actual differences, you'd need figures.

chambta

Cardinal-Red wrote: »

On a basic level, you will be charged tax at your marginal rate on the difference between what you pay, and what you would have paid had the circumstances been the same except for your employment with them.

This is however VERY basic and the fact that your employer's business is money lending anyway could also be relevant.

I am sure your HR department will be able to give you the full details of it - but as Dimbo says, to calculate the actual differences, you'd need figures.

I thought that the IR regulations state that anything lent below 6% is a taxable benefit in kind?

We're only talking about a mortgage of around £90k and no there's no requirement to remortgage should I leave the bank. If I could fix it for 5 years at that rate I definitely would!

Edale

Looking at information on HM Revenue and Customs website they currently work benefits in kind on loans using a rate of 5% hence anything under this would be classed as a benefit. Therefore a rate of 5.19% would not currently give a benefit in kind. They may change this rate and as others have said you need to consider the possibility and consequences of you moving jobs. Is it worth the bother? On £100,000 it would give you a saving of £300 per annum.

Hope this helps

Cardinal-Red

Chambta,

I have no experience of this in a banking environment but the normal income tax treatment is, basically (!!) as follows:

Say you borrowed £10,000 from your employer for a year, and they charged you £100 for this. The taxable benefit is calculated by applying the official rate of interest (currently 6.25%) to your loan, minus any interest you actually pay. So the benefit for the year would be 625-100 = £525.

If you're a standard rate taxpayer, this will then attract an tax charge of (525 x 22%) (or 20% from next week) = £115.

However your problem is that your employer's normal course of business is lending money and so the official rate of interest won't apply. If you get a discount of, say, 0.6% simply because you're an employee (i.e. no normal customers get this rate) then my instinct under the rules would be that the taxable benefit would be the interest saved by you simply by virtue of being an employee.

However clearly if this is a scheme run on a large scale by your employer then they'll be able to explain the situation better to you.

silvercar

the IR publishes a rate that they deem to be available as a basis for their calculations, anything less is a benefit in kind. So if they publish 6% then the fact you could get 5.49% is irrelevent, if you go with the employer deal you will be taxed on the difference between your deal and the published rate.

Be aware that the published rate could change, affecting your benefit in kind tax without the interest rate changing.

Edale

Cardinal-Red wrote: »

Chambta,

I have no experience of this in a banking environment but the normal income tax treatment is, basically (!!) as follows:

Say you borrowed £10,000 from your employer for a year, and they charged you £100 for this. The taxable benefit is calculated by applying the official rate of interest (currently 6.25%) to your loan, minus any interest you actually pay. So the benefit for the year would be 625-100 = £525.

If you're a standard rate taxpayer, this will then attract an tax charge of (525 x 22%) (or 20% from next week) = £115.

However your problem is that your employer's normal course of business is lending money and so the official rate of interest won't apply. If you get a discount of, say, 0.6% simply because you're an employee (i.e. no normal customers get this rate) then my instinct under the rules would be that the taxable benefit would be the interest saved by you simply by virtue of being an employee.

However clearly if this is a scheme run on a large scale by your employer then they'll be able to explain the situation better to you.

According to this the rate is currently 5%, where do you get 6.25%?

Edale

Found it now, the one I used has obviously not been updated. Good old HMRC!

waddy80

I work for a high street bank also, and although we still have staff mortgages, our staff also have access to the IFA rates that are available. These generally are not much different to the staff rates.

Cardinal-Red

Edale wrote: »

According to this the rate is currently 5%, where do you get 6.25%?

From here...