Bank of Ireland BoI Staff and the Revenue Commissioners BIK reference rate

[Brendan Burgess]

This would be of interest only to existing BoI staff.

According to Special Condition VI of their letter of offer...

The rate shall be the higher of the two following indicators:
(1) the prevailing Revenue Commissioners BIK (Benefit in Kind) reference rate;
(2) the one month Cost of Funds reference rate (which is equivalent to the one month EURIBOR rate issued by Bank of Ireland Global markets on a daily basis).

At the moment, the reference rate is 4% , so this clause is of no benefit.

But if the Minister for Finance reduced the rate to around the average mortgage rate in other eurozone countries, he would set it at about 1.5%.

That would automatically bring the rate down to 1.5%.

The problem is that I presume most people have switched from Staff Preferential Loan by now.

Is the SPL rate still in existence even?

I don't know why it's as high as 4%?

Brendan

 

[RedOnion]

I don't know why it's as high as 4%?

To stop company directors 'lending' money to themselves without paying tax. The same rate applies regardless of whether employer is a bank or not. From memory I think it used to be 6%.

 

[Brendan Burgess]

Hi Red

I had not thought of that. However here are the current Specified Rates

Does that mean that my company can give me a mortgage for the family home at 4% without any consequences for the company or for me?

Brendan

 

[RedOnion]

Hi Brendan,

Ignoring company law aspects for a minute.

The maths here isn't perfect, but it'll show why the rate won't be dropped to 1.5%. I've only ever looked at this from a bank employer perspective, so the usual target is to lend at arms length so no BIK applies.

Let's assume a 100k loan here for illustration.

If my employer lends me money at 4% for a qualifying home loan, there is no BIK for me. There's no employer PRSI for the company.
However, I actually have to pay the 4%, so the company has taxable income of 4k.

Now, let's assume there's no interest charged.
I'm deemed to be getting 4k benefit subject to BIK. So 52% tax for me. leading to an effective rate of 2.08% to me. Add in employer PRSI, the effective rate is somewhere around 2.5%.

It all gets far more complicated if the borrower is a director / participant, and it's a close company, as there are other tax provisions.

It's rarely of much benefit to borrow from company Vs a bank, unless you can't borrow from a bank on normal commercial basis (e.g. poor credit history).

 

[TomTron]

BIK made preferential rates offered to staff for mortgages uneconomic. It was of interest to some staff who effectively had access to a fixed rate, but ended up paying more. Most staff (whether they took the staff rate or not) made use of Save As You Earn schemes which allowed them to have access to heavily discounted shares after a wait period. These were then sold to pay down the capital of the mortgage. Unsure if this is still being done following the huge losses staff took after 2011 share price collapse and subsequent share consolidation. I know one staff member who had €53,000 of shares converted to €4.

I personally knew the son of the Managing Director of a large Irish bank who bought two flats in Blackrock Dublin with a mortgage rate his father arrranged on the 'one month Cost of Funds reference rate' I believe he ended up with a fixed mortgage for 30 years at .69%. I never knew how that was squared away with Revenue.

 

[Gordon Gekko]

It’s a while since I looked at this, but I don’t think that the specified rate is relevant if the business of the employer is lending money and lower rates are generally available.

Brendan, it can make absolute sense as a notional rate of 4% means tax of 2% which is up there with the Avant rate.

 

[RedOnion]

but I don’t think that the specified rate is relevant if the business of the employer is lending money and lower rates are generally available.

Absolutely correct. So long as the rate is at arms length, the specified rate isn't applicable. So if it's a rate that was available to the public, and the staff qualified, then it's not an issue for example if they had a 0.6% tracker.