The UK Government has rejected proposals which would allow people to pay their mortgage through their wages before any tax or National Insurance deductions are made, in a similar way to pension contributions. The proposals in the online petition, created and posted on the official petitions-parliament website by Aqad Zane, has received more than 25,357 signatures of support, at time of writing.
The response from the Treasury said: “The government does not believe that allowing tax-advantaged salary-sacrifice schemes for mortgage costs in the most effective way to target support to those who need it most. The tax relief would be of greater benefit to those paying higher rates of tax with the most expensive properties and would only benefit those in employment.”
It added: “A new relief would have to be paid for, at least in part, by increased taxes for other taxpayers or reducing expenditure on public services.”
However, the Treasury said that the UK Government recognises the challenges facing households due to elevated costs of living and acted at Spring Budget 2023 to go further to protect struggling families.”
The lengthy response highlights the various financial support measures in place to help households across the country mitigate higher costs of food and fuel along with the impact of the Bank of England’s base rate rise.
You can read the full response to the petition, which closes on August 23, 2023, here. If the petition reaches 100,000 signature of support it will be considered for debate in Parliament.
The ‘Allow people to pay their mortgage through salary sacrifice’ petition proposes that amending the ‘salary sacrifice’ process “would allow more people to become mortgage-free sooner” and could help struggling households during the ongoing cost of living crisis.
It states: “The Government should allow all mortgage contributions towards an individual's main residence or family home to be made through salary sacrifice, prior to tax and national insurance deductions (similar to pension contributions).”
The petition continues: “This would allow more people to become mortgage free sooner in life and put more towards their and their children's future. It could also help divorced couples, where people are having to start life all over again, on their own, at a late age.
“The rising cost of living and house prices makes paying off a mortgage extremely challenging for many people. The value of the mortgage that people could pay off using salary sacrifice could be capped, so that it only benefited those who are in need.”
Salary sacrifice - what is it and how does it work?
For those that have never heard of ‘salary sacrifice’, Jonathan Watts-Lay, Director at WEALTH at work, breaks it down and how it could be something more people could benefit from.
He explained: “One way to save money is by paying for things through your company payroll using your pre-tax salary, so you pay less income tax and National Insurance. This is known as salary sacrifice and can offer employees significant savings.”
Jonathan said that higher rate taxpayers can make a saving of 40% in income tax and 2% in National Insurance, while employees who pay tax at the basic rate can make a saving of 20% in income tax and 12% in National Insurance.
He continued: “Many people pay their pension contributions in this way, but it can also be used to pay for transport such as company cars, bikes, and bus passes, and even mobile phones, gym passes and health and dental care. However, many benefits such as mobile phones and company cars are now seen as ‘Benefits in Kind’, and while savings can still be made, many do now have high tax charges.
“Tax free benefits however are still available on employer provided pension savings and pensions advice, certain types of employee share plans, and cycle to work schemes.”
He added that childcare vouchers and contracted childcare can also be paid for through salary sacrifice, although these arrangements are closed to new applicants .
Jonathan also said it is one of the best ways to buy a new electric car. He explained: “For those looking for a new car, salary sacrifice is one of the most cost-effective ways to drive an electric vehicle, as the benefit in kind value applied to electric cars is currently 2%. This means the income tax and National Insurance saving outweigh this relatively small ‘Benefit in Kind’ cost, whereas the cost for drivers of petrol and diesel and cars can be up to 37%.
He added: “Salary sacrifice can also mean that there is the potential for your employer to negotiate corporate discounts for things like car parking, mobile phones, laptops, gym memberships, cars and bikes. But it could mean that you have less choice as they may only be available through selected providers.
“It will also mean that you will have less salary coming in each month, so make sure that you will still have enough.”
Jonathan advises anyone interested in salary sacrifice should speak to their employer to find out what options are available.
To keep up to date with developments with this petition, join our Money Saving Scotland Facebook page here, follow us on Twitter @Record_Money, or subscribe to our newsletter which goes out Monday to Friday - sign up here.
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