Staff Mortgages and Benefits in Kind

chambta

silvercar wrote: »

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.

The 5.49% comes into in so much as that's a deal I can have from a BS that wouldn't affect my tax situation.

At 5.19% I will of course have lower mortgage repayments (it will be a repayment mortgage also) but will lose elsewhere.

I just need to know based on a £90k 30yr mortgage will the saved interest be outweighed by the taxed benefit. If I knew how to work it out I would!

minimike2

If you work for RBS / Natwest then the staff mortgages are cracking - the tax sorts itself out as you are paid the difference in a "rebate / subsidy" in your gross salary that it taxed on PAYE.

If you work for one of the other high street banks then the staff deals I have seen are usually not cheaper than searching the rest of the market!! I guess it all depends on the full terms of the offer. As long at the rate doesnt dorp below 5% you shouldnt have a tax liability.

chambta

minimike2 wrote: »

If you work for RBS / Natwest then the staff mortgages are cracking - the tax sorts itself out as you are paid the difference in a "rebate / subsidy" in your gross salary that it taxed on PAYE.

If you work for one of the other high street banks then the staff deals I have seen are usually not cheaper than searching the rest of the market!! I guess it all depends on the full terms of the offer. As long at the rate doesnt dorp below 5% you shouldnt have a tax liability.

I do work for the RBS group so thanks alot for the advice. I'll confirm what you say with HR and that should be that!

minimike2

Oh I forgot, there are two different deals .... the subsidy deal and the "YourBank" deal.

The subsidy deal is the one you want. The YourBank one isnt as good.

ptee

Hi, I'm no expert but I've done a fair amount of research regarding my own staff rate and benefit in kind and this is how I would work it out (it may not be 100% correct, hopefully someone can check it )

The effect of the staff mortgage on your tax code is worked out by taking the average balance of your mortgage over the year (say £89350 for you first year) and the average interest rate of the mortgage over the year (say 5.25% for 08/09 - for 07/08 our company used 5.5%) these are really best guesses especially if you have a variable rate mortgage.

You then multiply your average mortgage balance by the official rate 6.25% so 89350*0.0625 = £5584.38
and multiply your average mortgage balance by the average interest rate you'll pay 89.50*0.0525 = £4690.88

Then work out the difference between the two
£5584.38 - £4690.88 = £893.50. This figure is the taxable benefit of the discounted rate for the year, so you will pay tax on this amount.
How they do it is deduct it from your tax free allowance (tax code) so from the standard 522 you'll move to 433 (5225-894=4331 or a tax code of 433)

At the standard tax rate for 08-09 20% the this will cost you an extra £178.70 in tax over the first year, or an extra £14.89 a month.

So to compare...
Staff rate: £90,000 over 30yrs @ 5.19% = £498.50 per month + the extra £14.89 in tax = £513.39 per month real cost.

BS rate: £90,000 over 30yrs @ 5.49% = £515.47 per month.

This would mean your staff rate is marginally better in the first year.
But it really depends on the whether the interest rate changes etc.

Also as you get further into the mortgage and you're paying more off the loan the benefit will be greater as the average balance will be lower.
Hope that makes sense

Ptee

(P.S. If anyone is an expert I'd be interested to know if I'm working it out correctly )

chambta

minimike2 wrote: »

Oh I forgot, there are two different deals .... the subsidy deal and the "YourBank" deal.

The subsidy deal is the one you want. The YourBank one isnt as good.

Never heard of the subsidy deal. Ii something the bank want to keep quiet about?!

chambta

ptee wrote: »

Hi, I'm no expert but I've done a fair amount of research regarding my own staff rate and benefit in kind and this is how I would work it out (it may not be 100% correct, hopefully someone can check it )

The effect of the staff mortgage on your tax code is worked out by taking the average balance of your mortgage over the year (say £89350 for you first year) and the average interest rate of the mortgage over the year (say 5.25% for 08/09 - for 07/08 our company used 5.5%) these are really best guesses especially if you have a variable rate mortgage.

You then multiply your average mortgage balance by the official rate 6.25% so 89350*0.0625 = £5584.38
and multiply your average mortgage balance by the average interest rate you'll pay 89.50*0.0525 = £4690.88

Then work out the difference between the two
£5584.38 - £4690.88 = £893.50. This figure is the taxable benefit of the discounted rate for the year, so you will pay tax on this amount.
How they do it is deduct it from your tax free allowance (tax code) so from the standard 522 you'll move to 433 (5225-894=4331 or a tax code of 433)

At the standard tax rate for 08-09 20% the this will cost you an extra £178.70 in tax over the first year, or an extra £14.89 a month.

So to compare...
Staff rate: £90,000 over 30yrs @ 5.19% = £498.50 per month + the extra £14.89 in tax = £513.39 per month real cost.

BS rate: £90,000 over 30yrs @ 5.49% = £515.47 per month.

This would mean your staff rate is marginally better in the first year.
But it really depends on the whether the interest rate changes etc.

Also as you get further into the mortgage and you're paying more off the loan the benefit will be greater as the average balance will be lower.
Hope that makes sense

Ptee

(P.S. If anyone is an expert I'd be interested to know if I'm working it out correctly )

I thought it was as complicated as that! I may leave it to my HR dept to work it out if they are able to though no doubt they'll point me to the Inland Revenue. It was less complicated a few years back when the group offered only a flat 6% staff house purchase loan!

Tahiti

Considering the Yourbank deal is fee free and with a lower interest rate than the standard NatWest retail rate, I'd assume (could well be wrong) that it's not always going to be the better deal to take as a staff member even with the subsidy. Does anyone know categorically?

Also, would the Subsidised rate also be taxable as a benefit in kind, as it is based on a retail rate?

minimike2

As ex RBS group staff I can categorically say the subsidy deal is better. You get the equivellant of 2% off the rate of the mortgage, paid back to you in your gross pay, taxed as PAYE. Its applicable to the first £75k ish of the mortgage, the net benefit after tax is about £80 a month....

SamDude

Just digging up this thread as:
-Its nearly renewal time (currently on 4.99% with A+L) due to end in April.
-I'm now RBS group staff

I've been looking at various deals and have the added 'complication' of comparing the employers deals too.

Is the subsidy deal still available? I can't find any details anywhere.

The current 'YourBank' deal is 3.14% (2-year fixed) or 3.54% (2-year tracker).

The size of the mortgage will be around £180,000 at the time of renewal.

Thanks all