Hidden cost of interest-free home loans

31st August 2001 at 01:00
TEACHERS who qualify for the Government's new interest-free loans towards the cost of buying a home could find themselves hit by tax bills of more than pound;300.

Transport and local governement secretary Stephen Byers is to announce pound;250 million to help public-sector workers in areas with expensive housing to ease chronic staff shortages. But union leaders say that unless the Treasury grants teachers a tax exemption on the benefit, they will be guilty of "giving with one hand and taking away with the other".

Around 2,000 cash-strapped teachers in the South-east will benefit from means-tested loans of up to pound;25,000 However, without tax exemption, they will have to pay pound;330 in income tax each year. Education authorities will also have to pay out an extra pound;180 annually in National Insurance contributions.

Maurice Fitzpatrick, of accountants Tencon, said: "This scheme will not work unless an exemption is introduced because teachers and councils will be saddled with hefty tax liabilities."

Doug McAvoy, general secretary of the National Union of Teachers, said:

"Extraordinary cynicism would greet a Government announcement that so blatantly gives with one hand and takes away with the other.

"The fact that this will be an interest-free loan will be nullified if teachers then have to pay significant amounts of tax on it."

Chris Keates, deputy general secretary of the National Association of Schoolmasters Union of Women Teachers, said: "The whole home loan thing is going to be complicated enough, without teachers having to pay additional tax as well."

A Government spokesman said the tax issue was under discussion and there would be an official announcement next month.

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