The government has scotched speculation that the tax exemption on offset mortgages is to be stopped.
Industry sources claim that lenders including Standard Life Bank have been telling brokers that the Inland Revenue is looking closely at offset accounts to tighten up the current situation whereby offset customers are exempt from tax on the savings part of the product.
The IR has denied that any such changes are in the pipeline, calling the allegations “rumours”.
Patrick O 'Brien, spokesman at the Inland Revenue, says: “Income Tax is only chargeable if income is actually received.
“With an offset, the customer is obtaining a reduction in a debt, not an income on his savings – even though he might regard these things as having a similar effect in economic terms.”
In a statement from Standard Life Bank, Mortgage Strategy was told: “We do not believe that the tax implications of offset mortgages is an issue.
“We make it clear in our documentation that, as no interest is payable in respect of the amounts held in offset reserves, no income accrues to the borrower and therefore no tax is payable.
“Should the Inland Revenue rules change, our customers in any case have an alternative way of achieving the same overall position by overpaying, secure in the knowledge that they can redraw their overpayments if they need to.
“These are ring-fenced in the customer's pre-payment reserve.”