Contracting and mortgage repayments - low salary, high dividends? Other options?

[Boris4PM]

This may appear as a stupid question. My personal circumstances have changed and I am now facing a big hike in mortgage repayments (I'm looking to pay my former partner out of her share of our flat) so will be facing monthly payments of probably £2500/month.

I am in early discussions with specialist mortgage brokers and I am hopeful that I can secure a loan.

For the past 10 or so years I have always paid myself a low salary (circa 12k) and topped this off with varying amounts of dividends depending on what outlays have been needed each year. Obviuosly I'm now looking at paying circa £2500/month of loan repayments plus living costs of around £1000.

So I would envisage paying a salary of £12k and then dividends on top of that (i.e. £1000 salary, plus £2500 in divs per month). Or is there a another way of approaching this? Short of winning the lotto?

[northernladuk]

I've no idea what you are asking. You say you do low wage and the divi to cover your outgoings, your outgoings have gone up so divi more out surely?

You say you only take out what you need. Shouldn't you have been getting div's out to the next tax band even if you don't need it to avoid paying top whack on them when you close the company? Talk to your accountant about the thresholds and what's the most efficient way bearing in mind close down tax at the end.

Speak to Freelance Financials, they work on contractor mortgages so should be able to secure one just based on your day rate and shouldn't be a problem if your outgoings are as low as that.

Not sure what else there is to say on this one?

[jamesbrown]

How you extract the money, assuming it exists, probably isn’t your main concern, and is presumably quite obvious - you can pay salary or dividends or some combination of the two, each with different personal and corporate tax implications. Your main concern will be getting a mortgage. Speak to a broker.

[Boris4PM]

I've no idea what you are asking. You say you do low wage and the divi to cover your outgoings, your outgoings have gone up so divi more out surely?

Well, yeah...that's what I thought. Hence the "This may appear as a stupid question"...

I just wanted to make sure there was not some other magic bullet here. I know there's the option of buying your own house through your Ltd, but that's not advised and not an avenue I would want. But just wanted to see how other contractors approach this. It appears I know already!

jamesbrown[/URL];n4279751]Your main concern will be getting a mortgage. Speak to a broker.

Yes, doing that as stated. Have spoken to some...including mortgagesquad, cmme, FF, PCM

[northernladuk]

Well, yeah...that's what I thought. Hence the "This may appear as a stupid question"...

I just wanted to make sure there was not some other magic bullet here. I know there's the option of buying your own house through your Ltd, but that's not advised and not an avenue I would want. But just wanted to see how other contractors approach this. It appears I know already!

That's certainly not an option, doubly so when the only problem you are facing is that your outgoings have gone up, granted by an eye watering amount but none the less just gone up.

You do but it appears you aren't withdrawing the most efficiently which might have meant you had a nest egg to help with this hit. Speak to your accountant. Taking out the bare minimum and leaving too much in the company isn't an efficient model in the long run.

[fiisch]

Not really anything different to consider as a contractor - obviously, if you can keep dividends below £38.5k plus salary per year this will help reduce your personal tax bill (and avoid higher dividend tax).

For getting a mortgage, there are some friendly banks (Halifax has been our provider for 11 years) who treat contractors very generously in terms of affordability calculations (Halifax has always been 48 x day rate x 5, which personally seems to me to be a little bit too generous but I'm not complaining...).

[WTFH]

How much of a deposit are you able to put down?
Or, if it's a case that you have built up a nice bit of equity in the property, what's the LTV?

You'll get more options and better rates the lower you can get your LTV.
Hopefully you've been sensible over the years you've been contracting and overpaying/paying down the capital

[jamesbrown]

48 x day rate x 5

Um, 240x day rate is pretty poor

[eek]

Not really anything different to consider as a contractor - obviously, if you can keep dividends below £38.5k plus salary per year this will help reduce your personal tax bill (and avoid higher dividend tax).

For getting a mortgage, there are some friendly banks (Halifax has been our provider for 11 years) who treat contractors very generously in terms of affordability calculations (Halifax has always been 48 x day rate x 5, which personally seems to me to be a little bit too generous but I'm not complaining...).

um your figure of £38.5k makes no sense at all? I take it you mean keep total income below £50,500 or so to minimize how much is taxes at 33.75%

[Boris4PM]

You do but it appears you aren't withdrawing the most efficiently which might have meant you had a nest egg to help with this hit. Speak to your accountant. Taking out the bare minimum and leaving too much in the company isn't an efficient model in the long run.

I've been withdrawing from the Ltd whilst between contracts, so I won't have an issue in the long run. But deffo will have to ensure things are run efficiently going forward.

um your figure of £38.5k makes no sense at all? I take it you mean keep total income below £50,500 or so to minimize how much is taxes at 33.75%

I think the reference of £38.5k is for the div threshold (£37,700 for Fiscal Year 2023/2024).

Incidentally, what is the current go to calculator for fincial musings (apart from accountant)? I have been looking at the Contractor Calculator one: https://www.contractorcalculator.co.uk "Contractor Calculator - Outside IR35"

How much of a deposit are you able to put down?
Or, if it's a case that you have built up a nice bit of equity in the property, what's the LTV?

You'll get more options and better rates the lower you can get your LTV.
Hopefully you've been sensible over the years you've been contracting and overpaying/paying down the capital

Every penny has gone into the house/renovations so LTV is now approx 53%. Crazily enough it was around 7%!