Paying off mortgage VS High Earnings Tax

[minstrel]

If you do this post April '08 I believe it will work out more beneficial to you as the CGT rate will be fixed at 18%.

No - that's definitely wrong.

You are correct that CGT is fixed at 18% post April put this is a lot worse that it is currently as a company owned for > 2 years qualifies as a business asset and is eligible for 75% taper relief.

E.g. If you've got £100k in the business:

this year £100k - 75% = £25k. Minus £9,200 CGT allowance = taxible income of £15,800 = £3,476 tax due (basic rate tax payer)

next year tax due = £100k - £9,200 (or whatever it is next year) @ 18% = £16,344.

If OP has held his company > 2 years probably best to close down before April and take a capital distribution.

[chris79]

It's possible to plot out your mortgage repayment over the term in excel month by month, then work out on a yearly basis how much interest totalled this costs you for the debt you have.

You can then work out scenario B which shows how much your debt is costing you if you pay off a chunk using money paid from higher rate tax.

The best option will be if your interest savings outweigh the penalty of higher rate tax, but I'm sure thinking of this logically in my head there will be a crossover point where it is not beneficial to use higher rate tax to pay off debt. This is where excel will show you the cost savings if you map it all out correctly so you can make your own judgement on a month by month basis. It will obviously be more beneficial to pay large chunks off 'sooner' rather than 'later' due to the cumulative effect of interest over time. It gets a bit more complicated if you factor in inflation as well as interest paid on your business funds etc.. but nothing you can't map out over the course of an afternoon?

[ChimpMaster]

No - that's definitely wrong.

You are correct that CGT is fixed at 18% post April put this is a lot worse that it is currently as a company owned for > 2 years qualifies as a business asset and is eligible for 75% taper relief
.....snip

Argggh! Yes you're right, I thought about it when I was writing and actually mistyped.

Still the principal is still one of the most tax efficient ways of getting current disposal funds to the OP. I would much rather do this and use a lump sum to pay off the mortgage than put large sums into a pension that I might never see.

[ASB]

Argggh! Yes you're right, I thought about it when I was writing and actually mistyped.

Still the principal is still one of the most tax efficient ways of getting current disposal funds to the OP. I would much rather do this and use a lump sum to pay off the mortgage than put large sums into a pension that I might never see.

Notwithstanding the CGT changes there is the *potential* problem that the current ESC16 is in the gift of the inspector and he might take the view that doing it more than once is not to be permitted.