Make your Stoozing Profits Tax Free by Offsetting
| Created: 23/04/2008 |
Introduction
The introduction of Balance Transfer fees means that Stoozers need to search a little harder to find the most profitable deals. However, there is one way that tax payers can increase their stoozing profits by as much as 67%! Not only does it make stoozing more profitable, but it also increase the number of 0% card offers that are worth applying for.
Offset Mortgages
'Offset' or 'Current Account' mortgages combine your borrowing, savings and current account into one pot of money, so that any cash you have in your savings and current accounts get 'offset' against your mortgage. For example, if you have a mortgage of £100,000 and you have £10,000 in savings and £2,500 in your current account, then you will only be charged mortgage interest on £,87,500.
How does this benefit the Stoozer?
In short, it benefits the stoozer because your stoozing interest is no longer taxed. When you put your Stooz Pot in a conventional savings account, the interest you earn is taxed at your normal tax rate: reducing your earnings by 20% for a basic rate tax payer and a hefty 40% for a higher rate tax payer. However, when you use your stoozing money to offset against your mortgage, it is used to reduce your debt. Because your are just reducing a debt, there is no tax to pay. In effect, your stoozing profits become tax free!
So how much difference does this make?
If you have £10,000 stoozed for a year in a conventional savings account with a rate of 6% AER, then a higher rate tax payer would earn £360 and a basic rate tax payer would earn £480. However, if the same money was used to offset a mortgage with the same interest rate of 6% APR, then you would make an untaxed £600. That's 67% more for a higher rate tax payer and 25% more for a basic rate tax payer. That's worth having!
How do I get my stoozed money into my offset mortgage account?
In general, it is no different from getting your stoozing card money from a credit card into a conventional savings account: you use an SBT card or route it via a card like Egg Money. However, there is one offset mortgage on the market that has a nifty little feature that makes it a lot easier. The One Account from the Royal Bank of Scotland also comes with a credit card which also gets included as part of the same pot of money as your mortgage and other accounts. So you can do a Balance Transfer from your One Account credit card to your stoozing card which results in the money going directly from your stoozing card, straight into offsetting against your mortgage. That's really quite neat. It's like the Egg Money card of the mortgage world! For a list of the offset mortgages, see our Offset Mortages table.
Anything else I should consider?
If you are considering an offset mortgage, then make sure that you check for a competitive interest rate. Because they offer a tremendous amount of flexibility, they can have slightly higher rates than other mortgages. Having said that, the author has an offset mortgage deal that tracks under the Bank of England base rate. Not only is it a very competitive mortgage, but it means that stoozing profits are all tax free.
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