What is the 'Official base rate'

In message , Slider writes

The Bank of England base rate is the official rate which is now 1.5%

It doesn't look to me as though the "official" mortgage rate has anything to do with the formula you have quoted - it mentions an "actual mortgage rate", and then in the example it uses the 4.5% that was given as the "employees' interest rate". I don't think that that the Bank of England base rate was as high as 6.25% two years ago - IIRC the last time it was that high was 1998/early 1999. However, Bank of England base rate got up to about 5.75% in July 2007, so it's entirely possible that at that time your wife's employer's base rate was 6.25%.

I suspect the easiest way to find out would be for your wife to ask her employer.

Yes, the BoE base-rate is 1.5% but for calculating the BiK HMRC have an official rate for calculation. The idea is that they tax you on the difference between what you have paid (after staff discount) and what they reckon you should have paid (open market) - that is taxing the 'benefit' received as if it was income.

Here's the link to HMRC rates:

Justin.

Thanks Justin. So even though the BoE base rate drops to 1.5%, the OFFICIAL rate remains at 6.25%? I was hoping this would be reduced in-line with the BoE base rate.

The BoE base rate is irrelevant, although the official rate will no doubt in due course be adjusted in line with it, there will always be a significant time lag.

But really the HMRC official rate should also be irrelevant in this particular case. Is not the official rate intended to apply in the general case where an employer makes a general purpose loan to an employee? But in the specific case where the employer is in the business of lending, surely the BiK should be based on the *actual* discount extended to the employee, and so it's not the HMRC official rate which should be used as the benchmark, but the actual undiscounted rate at which the same or equivalent loan product is available to the public. That will almost certainly be less than 6.25%.

Yup, it's a crazy calculation but nevertheless it's the one that's used.

Indeed, with rates so low and the official rate so high you'll probably find that the company discount is outweighed by the tax paid as BiK (Especially if higher rate tax payer)!

Justin.

Yup. I don't know how often they review it but if it's every tax year then it might stay at 6.25%!

I've always found the official rate is a little higher than the actual open-market anyway. Hopefully, the staff discount is outweighed by the additional tax paid...

The calculation is roughly this:

Benefit = (Expected interest on balance @ Official Rate) minus (Actual interest paid)

This benefit is then added to taxable earnings and tax paid at 20% (or 40%) on it.

Justin.

I think what you are looking for is the interest rate on beneficial loans

It was probably 7% not so long ago.