Investing company assets in OEICs/Unit Trusts

[dude69]

Nope. If you have an offset mortgage your cash is better off in there.

Not really true.

Pay out £4800 from the company, then you receive £3600 cash.

If your offset rate is 6%, then that's £216 interest/year. Grossed up, that's £288 of cash received from the company required to pay that interest, before payment of 25% tax.

So if you start with an I/O mortgage of £103,600 then after 10 years:
Option ISA: £3,600 in ISA @ 6% AER = £6,447. Mortgage balance = £103,600. Pay down £3,600 on mortgage in year 10, leaves you with £100k mortgage balance, remaining ISA = £2,847
Option Year 1 Repay: Zero in ISA. Mortgage balance = £100,000. Additional retained profit in company = £288 * £10 = £2,880. Pay out as dividend: 25% = £2,160.

So option ISA leaves you with £2,847 TAX-SHELTERED capital. Option mortgage repay leaves you with £2,160 of taxable capital. You are MASSIVELY better off with option ISA.

Don't forget, that for us contractors, offset mortgages are not nearly as good as for salaried people - we can only paying 25% tax, normal people can avoid 40%.

[tim123]

You're not hiding it offshore - you're investing it offshore. Virtually tax free growth, deferred CT is better than paying it on an ongoing basis. Create a loss and bring the capital back then. .

So how do I create a loss then?

The only two ways my company usefully "spends" money is paying it to me or buying something expensible[1].

And buying something that I don't want, in order to create a loss seems silly.

tim

[1] The pedants are free to correct the spelling of this, my dictionary say that it doesn't exist as an adjective!

[tim123]

Don't forget, that for us contractors, offset mortgages are not nearly as good as for salaried people - we can only paying 25% tax, normal people can avoid 40%.

I think most 'normal' people would disagree with that.

What do you think the median wage is?

tim

[glashIFA@Paramount]

So how do I create a loss then?

The only two ways my company usefully "spends" money is paying it to me or buying something expensible[1].

And buying something that I don't want, in order to create a loss seems silly.

tim

[1] The pedants are free to correct the spelling of this, my dictionary say that it doesn't exist as an adjective!

Don't know the answer to that one, I'm afraid. I know that its not always possible for this to be done although its a lot easier for some companies / businesses than others.

[Ardesco]

Don't know the answer to that one, I'm afraid. I know that its not always possible for this to be done although its a lot easier for some companies / businesses than others.

So your financial advice is hide the money off shore, create a loss and bring the capital back. But you don't know how to do this.....



Remind me to give you a call when I have £50,000 sitting around doing nothing...

[dude69]

I think most 'normal' people would disagree with that.

What do you think the median wage is?

tim

about £20k?

for the purposes of people considering offset mortgages, paying 40% tax is normal.

[GreenerGrass]

Don't forget, that for us contractors, offset mortgages are not nearly as good as for salaried people - we can only paying 25% tax, normal people can avoid 40%.

The thing is, if you want to pay your mortgage off early by making overpayments, especially in the south east, then you're going to have to draw over the higher rate tax limit.

At the moment I'm trying to have a foot in all camps, use up full ISA allowance, match 10k salary in pension contributions, make mortgage over payments to the maximum available, and leave what's left after living expenses in the company.
I guess the alternative is to leave more in the company and then every 3 or 4 years close it down, and pay off a big chunk of mortgage at that point.
Probably end up doing that anyway if the HMRC persecution continues.

I wouldn't want to invest anymore in OEICS/unit trusts than the above, we could be in a bear market that lasts 2 or 3 years, so paying down mortgage debt or leaving it in cash is preferrable at the moment.

[ASB]

So paying down mortgage debt or leaving it in cash is preferable at the moment.

If you are a higher rate taxpayer then paying off mortgage effectively gives you a guaranteed return of 10%. A base rate taxpayer a guaranteed return of about 8% - assuming a mortgage rate of 6%.

If you have a mortgage and are also actively investing then you are effectively borrowing money at a net 6% in order to make a gross x%. Paying off the mortgage is probably a better use of the money.

[dude69]

If you are a higher rate taxpayer then paying off mortgage effectively gives you a guaranteed return of 10%. A base rate taxpayer a guaranteed return of about 8% - assuming a mortgage rate of 6%.

Wrong, for contractors using Ltd/dividend structure: there's no basic rate tax relief on dividends. So it's actually 6% for basic rate payers, 8% for higher. But to be a higher rate tax payer it implies you are taking unnecessary dividends. There's no point at all in taking out extra dividends to pay beyond the minimum payment on a mortgage. If you have spare cash/savings that isn't taxed at higher rate, then go ahead, especially if it means you can keep within basic rate for future years.

That was the whole thing with the scrapping of ACT and Gordon Broon raiding all those charities and old people to pay for his evil plans.

[Lewis]

Don't forget, that for us contractors, offset mortgages are not nearly as good as for salaried people - we can only paying 25% tax, normal people can avoid 40%.

I disagree, I think they are particularly suited to contractors, who often need flexibility due to breaks in work etc. There are many benefits to an offset mortgage, the main ones are:

(1) Your savings (including a positive current account balance) are offset against you mortgage, which has the effect of making them tax free. e.g. for a higher rate tax payer, a mortgage rate of 6% means you would have to get 10% on savings elsewhere. Unless you put them into tax free savings (e.g. ISA) and in which case you would need to get the same rate as your mortgage. But the advantage of the offset mortgage is the money is always there and there is no limit on what you can offset per year, unlike an ISA.

(2) You can arrange a borrowing limit which is in excess of what you need so you can have instant access to emmergency cash with no hassle and an excellent rate of interest (compared to a personal loan). Plus nothing to pay if you don't use it.

(3) You can easily make overpayments or take payment holidays or increase you mortgage or switch to interest only without asking for any authorisation, you just transfer money from one account to another. Great for contracting where you usually need extra flexibility.

I think it is hard to beat having an offset against mortgage. The only thing to watch out for is the interest rate, which can be more than elsewhere, but you can get excellent offset mortgage rates now.