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There are no savings accounts in the UK giving a positive return after inflation for the new band of 50% taxpayers – for them, offset mortgages might be the best key to success.

Figures from moneysupermarket.com shows that savers and borrowers who fall into the new income tax bracket of 50p in the pound above a certain limit would need a savings account paying at least 7.4% to beat the effects of tax and inflation.

However, for those 50% taxpayers with savings and a mortgage, now could prove the perfect time to consider switching to an offset mortgage deal as a way of providing an alternative to poor paying savings accounts. Unlike a savings account interest is not earned on the balance of the savings pot, instead this pot is offset against the outstanding mortgage balance, reducing the rate each month.

This means the mortgage will be paid off earlier, and the interest paid on the mortgage will be significantly less with no tax payable. Also, the cash balance in the offset account can still be accessed at any time.

Hannah Mercedes-Skenfield, mortgage channel manager at moneysupermarket.com, says: “Many people in the new 50% tax bracket will be looking at ways to limit the impact of both tax and inflation. As a result offset mortgages are an extremely attractive option for borrowers who also have a decent savings pot.”

SOURCE: Moneysupermarket.com, 07/04/10

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