The extra 1.3m Brits to pay 40% tax by 2014 could save through an offset mortgage
First Direct has calculated that they could save nearly £36,600 each if they used the tax efficient benefits of an offset mortgage.
Estimates from the Institute of Fiscal Studies (IFS) show that, based on the recent changes to income tax thresholds and predicted wage inflation, 15% of UK taxpayers will fall into the 40% tax bracket within the next 18 months.
First Direct has calculated that a 40% tax payer with an average £183,532 mortgage and typical cash savings of £36,706 could save £36,570 in interest costs over the term of their mortgage with an offset versus a normal repayment style mortgage.
Ian Bartholomew, senior mortgage manager at First Direct, commented: “Offset mortgages used to be seen as complicated and when they were launched in the 1990s, only 5% of Britons found themselves in the higher rate income tax bracket and able to benefit from the tax efficiency an offset mortgage offers.
“Since then a lot has changed; more people that ever sit in the 40% tax bracket; instant access savings interest rates have fallen considerably; and the advantages of an offset are easier for homeowners to understand.
“It’s worth remembering that many people could be better off with an offset mortgage, even though the rewards are greater the higher the tax bracket. Any mortgage holder with savings should bear in mind the benefits of offsetting.”