Q: What sort of product is the ESM?
A: An Employer Subsidised Mortgage is a bespoke real value benefits package where your mortgage is subsidised. Paying off a mortgage is usually the largest employee expense. A most useful employee retention and recruitment benefit.
Q: Is the ESM only available to Companies?
A: The ESM benefit package is available to any employer.
Q: Why have we not seen it being offered by other product providers?
A: Subsidised mortgages have been offered by banks and other lenders to their own employees in the past. We are now making the ESM benefit available to a larger group of employers.
Q: Will I pay Tax on the Benefit?
A: This depends on your personal circumstances. Direct mortgage subsidies are usually taxed at your marginal rate of tax as a benefit in kind and NIC1A is payable by the Employer with no employee NIC payable. The main benefit is that all you pay is the tax on the benefit and not the mortgage amount payable which is payable by your Employer.
Q: Can I receive the benefit through salary sacrifice?
A: Yes you can, depending on your circumstances (see the section on Salary Sacrifice). Salary sacrifice cannot take you below the National Minimum Wage though.
Q: What exactly is the benefit to the Employee?
A: If the Employer pays the monthly mortgage payment of the employee as an additional benefit (without salary sacrifice) then the benefit to the employee is the net cost of the mortgage payment in an appreciating asset – his house. All the employee pays is the tax on the benefit at his marginal rate. If paid by salary sacrifice, then the employee still has the benefit of the mortgage payment being made, but now has less salary. The saving made is the employee national insurance contributions (in 2023/24 income up to £242 NI is nil; Between £242 -£967 is 12% and over £967 is 2% currently) not being payable on the benefit.
Q: Is the EMS approved by HMRC?
A: HMRC do not endorse or ‘approve’ any tax arrangement. Our tax accountants confirm tax calculations and that the process works. The HMRC clearance team can confirm the arrangements once made.
Q: Who administers the product?
A: Mentor Financial Services Limited is a specialist employee benefits provider. Its team of administrators will attend to all software, reporting and administrative issues.
Q: Can the Employer help Younger Employees get onto the Property Ladder?
A: In short, yes. The ESM can become a mainline benefit for many employers. Deposits can be provided for house purchase under the beneficial loan arrangements, which can be interest free and not taxable. Also Lifetime ISAs can provide a 25% bonus boost.
Q: Can the Employee use the benefit to enable his children to get onto the housing ladder?
A: The Employer can decide who benefits from the ESM programme established by it. This could extend to family members, especially if the employee wishes to assist his children.
Q: Is it only the Employer which is advised by Mentor Financial Services Limited, or does the employee also receive advice?
A: We have CeMap qualified mortgage advisers who liaise with the tax team to ensure that each employee is individually counselled if required as part of the service contracted for.
Q: Can Company Directors receive a subsidised mortgage?
A: Yes, and usually on the same terms as other employees. Certain types of loan arrangements may incur a tax charge for a closely held company.
Q: What happens if the Employee leaves the Employer?
A: Usually the provision of the subsidised mortgage arrangement would cease with termination of employment. The employee then takes over the servicing of his mortgage as before.