Mortgage based on SVR

What if she loses her job (not that unlikely, sadly, given the state of some banks...) ?

'special'

valuation

Are there any tax implications? If this offer is being subsidised by her employer (rather than "at cost"), then there will probably be a tax liability on the subsidy. She should check this with her employer.

Thanks, I'd not thought of that although I suppose since there is no tie-in we could just remortgage if that were to happen. I will check though to see if we'd go on to the SVR rate for 100% of the mortgage immediately if that was to happen.

Not thought of this - I'll check it out! Thanks.

Yes, there will be a tax implication. It will be taxed as a benefit in kind.

subsidised by

Not necessarily. AIUI BIK's are assessed on the cost to the employer. If the employer is offering the product/service at cost price to employees (ie making no loss on it) then there is no tax liability.

Retailers often give employee discounts on their shopping - there is usually no tax liability since the discount is usually set within the profit margin (it's often a quick way to find out the approx profit margin made by a chain - find out what the employee discount is!).

Transport companies often give discounts or even free travel to employees with no tax liability - as the cost of providing the service is generally nil or almost nil (eg airlines only allow staff to travel free if there are spare seats which can't be sold to paying members of the public).

I can't find a link to prove it but this does not fit in with my experience. My wife had to pay tax on the calculated benefit of her mortgage, even though it was a tiny discount so very unlikely to be loss making for the BS.

I don't think this is an applicable analogy. Lending money at a discount is always going to result in reduced profits. There are no "empty seats" here.

I don't think that can be the case. Or perhaps your interpretation of "cost to the employer" may be incorrect. If the employer gives something to an employee "at cost", then the cost to the employer of doing this is the loss of profit he would have made if it had been sold it to a real customer.

Let's transplant this into the situation where employer and employee are the same person. If a shopkeeper helps himself to goods from stock, for personal use, and is therefore making no profit from the sale of those goods, by your thinking there would be no BIK.

Yet AIUI the rules are that the business's taxable profit should be calculated as though he had bought the goods at the same price as he charges his customers. In other words, the profit he would have made on those goods, had he sold them to a real customer, is in effect a taxable BIK.

The rules on this issue are as established in the High Court (or perhaps the appeal court), now around 20 years ago, when a teacher in a private school wanted to take advantage the free place that his school offered to teacher's children.

HMIT had previously taxed such a perk on the basis of the price to the paying customer. The teacher challenged HMIT on this and won. The court ruled that the taxable benefit was the marginal cost of providing that perk to the employee, in the case of the teacher - nothing. How you calculate the marginal costs is another matter, but the legal basis is that is what you should do.

I don't think that the ruling applies in this situation

tim

employer.

liability.

This only applies if "it" can't be replaced through ordering an additional "it". Eg if the shop sells 543 "its" it will order 543 replacement "its" through their wholesaler. If an employee buys one at cost they'll just order 544. So no loss in profit. Unless you assume that the emplyee would have bought "it" through the shop at full price anyway - but that can't be assumed.

He would have to pay the wholesale cost, and maybe any associated indirect costs, otherwise it's a BIK. But not the full retail price.

So why do retail workers get tax-free staff only discount cards for shopping in the shop/chain they work in? Why do transport employees usually get free or heavily discounted travel on their company's transport tax-free?

tim has explained the legal basis.

"Andy Pandy" wrote

Hmmm. Aren't subsidised staff mortgages still taxed the same way that they were in the 1990's? Back then, the Inland Revenue (as it was then) used to publish an interest rate each year, and the actual interest paid on the "cheap" mortgage was compared with that. If the actual amount paid was less, then the difference was taxed as a BIK -- and the following year's tax code was even adjusted to attempt to collect the following year's tax across the year...

"Andy Pandy" wrote

What makes you think that the discount would be set anywhere near the profit margin?

I happen to know a particular store, where (at least at one time) the profit margin on certain goods was nearly 50%, yet the staff discount was only 10%.

It generally makes sense as a way of providing the employee a tax free perk at no cost to the company,

There will of course be exceptions.

Possibly. There are non standard rules about certain BIKs - company cars for instance.

I would not swear to it but I suspect that this is were the loan rate used for employees is better than the rate offered to the general public. This is then goods or services at less than commercial rate and the difference is a taxable benefit.

"Simon" wrote

Simon - what's the current "official" interest rate set by HMRC for these comparisons, nowadays?

The Official Rate of Interest at present is 6.25% an you can find this at

"Simon" wrote

Eh? Pages EIM26102 - EIM26104 *do* seem to require comparison with 6.25% !! ...

Page EIM26102, regarding "Section 175(1) and (2) ITEPA

Page EIM26103 goes on to say "The amount chargeable is called the cash equivalent of the benefit of the loan. This is the difference between: - the interest that would have been payable if the borrower had been required to pay interest on the loan at the appropriate

I note that page EIM26104 shows that the current "official rate" in this regard is 6.25% (the same as the rate that you said doesn't apply!).

Can you elaborate as to why you said "...that is not the rate for comparison in this instance. ... Loans are a special case..." ?

Ok, its a fair cop guv, I have been too busy on Integrated Team Structure, trying to get blood from stnes and quarts from pint pots.