LSP tax liability question

Discussion in 'Finance, Property, Law' started by CRmeansCeilingReached, Feb 7, 2011.

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  1. Been reading [FONT=&quot]through JSP 752 about LSAP and wonder if somebody can clarify something. I understand that LSAP is interest-free up to the max £8500, but there is a tax liability if you take more than £5000.
    Assuming one takes the full £8500, does anyone know approximately how much this tax liability equates to? I've no idea what "notional interest rate" the Treasury uses and can't find it on the net.

    Anyone know from first-hand experience? Cheers.
  2. I decided not to take this loan because I was a 40% taxpayer and didn't want to add to the complexity!

    But that doesn't answer your question, so I found:

    HM Revenue & Customs: Beneficial loan arrangements - official rates

    But that isn't good news...! 4% FFS?

    I reckon that will mean that HMRC will assume that a commercial loan will cost you £8500*0.04 = £340 pa.

    So, in theory, they will add £340 to your income. That will then be taxed @ 20% (=£68) or 40% (£136).

    Errors, omissions, fat fingers and stupidity excluded...

  3. Thanks for that, makes it a lot clearer.

    It says they only count it whilst the outstanding amount outstanding is more than £5000; would they still take the full £8500 into account then, or just £3500 of it?
  4. I understand it is the full amount.

  5. roger that, thanks. will see if i can get by with 5000, but if the extra 3500 means i can get a better mortgage rate then it's probably worth the extra £30 a month in tax.

    thanks for the help.
  6. It won't be £30 per month extra tax, CR. At worst (if you're a higher-rate taxpayer) it will be 40% of the £340 pa benefit, which comes to £136 extra tax per year (so just over £11 per month).

    Hope that helps,

  7. Hey Guys,
    Im trying to get my head round this whole LSAP thing and seem to be getting there. The only thing is Im not to sure how to go about explaining to the bank that I will be using LSAP. All the " forces mortgage specialists" keep saying that they have a full understanding of how to use LSAP to its full use....surely the high street banks, ie Santander will have similiar knowledge. Any insight into this would be appreciated. Cheers.