When Tax Bills Become Unmanageable
Large tax bills can arise from various situations: selling a property and owing capital gains tax, a balancing payment under self-assessment, an unexpected HMRC investigation, or simply underestimating your tax liability. If you don't have savings to cover the bill, you need to find the funds quickly to avoid HMRC interest charges and penalties.
HMRC charges interest on late payments (currently the base rate plus 2.5%) and can impose penalties of up to 100% of the tax owed in serious cases. This means that even if remortgaging takes a few weeks, it can still save you money compared to leaving the bill unpaid and accumulating HMRC charges.
How Lenders View Tax Bill Remortgages
Paying a tax bill is an accepted reason for raising capital through a remortgage, though some lenders may want more details about how the bill arose. If it was a one-off event (like a property sale), lenders are generally comfortable. If it suggests ongoing financial difficulty or poor financial management, some may be more cautious.
The standard affordability and equity checks apply. You'll need sufficient equity and income to support the higher mortgage repayments. If the tax bill is large enough to significantly increase your LTV, it may affect the rate you're offered.
HMRC Payment Plans
Before remortgaging, check whether HMRC will agree to a Time to Pay arrangement. This lets you spread your tax bill over monthly instalments, typically over six to twelve months. Interest still accrues, but you avoid the costs of remortgaging (arrangement fees, valuation fees, legal fees) and you don't add debt to your mortgage.
You can set up a Time to Pay plan online for self-assessment bills under £30,000 if you're within 60 days of the payment deadline. For larger amounts or more complex situations, you'll need to call HMRC to negotiate. They are generally willing to work with taxpayers who engage proactively.
Other Options to Consider
Depending on the size of the tax bill, these alternatives may be more appropriate than remortgaging:
- Personal loan — for bills under £25,000, a personal loan can be arranged quickly and repaid over a few years
- Savings or investments — liquidating non-essential savings or investments avoids borrowing costs entirely
- 0% credit card — HMRC accepts credit card payments (via third-party processors that charge a small fee), and a 0% card could provide interest-free time to repay
- Further advance — borrowing extra from your current lender without a full remortgage
Important: Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice. The actual rate available will depend on your circumstances. Think carefully before securing other debts against your home.