Tax Efficient Limited Company Director Mortgage

Active Brokers blog how to choose the perfect property Gary Das

As a company director wouldn’t you like to obtain a mortgage in the most tax efficient way possible?

As a sole trader, you only have 1 option because mortgage lenders use your net profit before tax to calculate how much you can borrow.

As a limited company director you will find a couple of options available to you.

  1. Salary + Dividends (majority of the high street banks use this method)
  2. Net profit + Salary.

Both have their merits however over £43,001 you become a higher rate tax payer.

So let’s say for example you are 100% director of your business.

You have £80,000 net profit you have a corporation tax bill of £16,000.  

OPTION 1

You have the choice of withdrawing £64,000 in dividends + your £10,000 salary = £74,000

You now have a personal tax bill of roughly £12,175

Total Tax bill £16,000 + £12,175 = £28,175

OPTION 2

You still have £80,000 net profit which is a tax bill of £16,000.

You choose to only withdraw dividends of £32,000 + £10,000 Salary = £42,000

You now have a personal tax bill of roughly £2,025

Total Tax Bill £16,000 + £2,025 = £18,025

SO WHAT DOES THIS MEAN

Well the main thing is option 2 reduces your tax bill £10,150.

My limited company directors love this option because if you do not need to withdraw your dividends then why would you?

Using profits to calculate how much you can borrow could increase the mortgage amount you get.  

Currently you will still get marketing lead interest rates.

Have a nose at my other blogs and videos in relation to how much you can borrow.

If you want to see how much this can benefit you then please get in touch.

Please only use these as a rough guide.

It is the Lenders responsibility to assess whether the mortgage is affordable to you.

I am not a qualified accountant and have used online calculators to obtain approximate tax liabilities.

Please speak to your accountant to obtain accurate figures based on your personal circumstances.

 

 

  • This does not constitute advice, it is for information purposes only.

 

    • You should contact a mortgage broker for personalised advice for your specific circumstances.  Please ask us for a personalised illustration.

 

  • We charge a fee of up to 2% of the amount borrowed.  Up to £995.00 is payable on application and the rest is payable on offer of the mortgage.

 

  • Active Brokers Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (http://www.fca.org.uk/register) under reference 488342.
  • Your home may be repossessed if you do not keep up repayments on your mortgage.
  • The mortgage industry does change over time but everything I have said is correct as of 21/03/2017.

 

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