Saving/Retirement etc

[jmo21]

I see, cheers mate. I haven't done any calculations myself, but I just thought that mortgage interest is a huge waste of money, so I wanted to reduce the capital ASAP. With interest rates where they are at the moment, my instinct is that the reduction in interest will exceed the interest earned on any investment available at the moment. I have my ISA maxed and a 3% savings account and I used to put the max into my pension when permie, but now I really want to own our flat (fortunately 20% of it is an equity loan, so dropping property prices is actually great for us since the repayable amount goes down).

yeah, everyone's situation is different, it may well be the correct thing to do for you and your family, assuming you are married with kids.

Or maybe you're a young whippersnapper in your mid-twenties with no wife/kids, if that's the case then yeah maybe the pension could wait an extra couple of years.

[psychocandy]

You don't pay Corp Tax on divs.

<NLUK>
What did I tell you about reading those links over there ----------------------->>>>>>>>
</NLUK>

OK. Let me rephrase - if you stick it into your SIPP its not a profit that you have to pay CT on.

[psychocandy]

yeah, everyone's situation is different, it may well be the correct thing to do for you and your family, assuming you are married with kids.

Or maybe you're a young whippersnapper in your mid-twenties with no wife/kids, if that's the case then yeah maybe the pension could wait an extra couple of years.

Married, kid, early-40s so probably need to sort my pension situation out. Like I said, got a few left over from various permie employments (and a company one from last time contracting)

[escapeUK]

What seems very clear to me, is that every £100 put aside for retirement will be worth £10 by the time I retire.

Therefore I dont bother trapping my money. Though I am thinking about putting a few thousand in gold coins every year.

[psychocandy]

So my understanding is that making contributions personally as opposed to via the company is pretty much the same in terms of tax? Well, my accountant says its about 0.5% better off doing it personally.....

Is the only advantage of doing it via company that its untouchable by IR35? Whereas contributions paid personally are paid out of money possibly already gained as a result of dividends which theoretically could be treated as PAYE if IR35 got you?

I know there was someone on the forum - I'll have a search - who was a big advocate of company rather than personal contributions....

[jmo21]

So my understanding is that making contributions personally as opposed to via the company is pretty much the same in terms of tax? Well, my accountant says its about 0.5% better off doing it personally.....

Is the only advantage of doing it via company that its untouchable by IR35? Whereas contributions paid personally are paid out of money possibly already gained as a result of dividends which theoretically could be treated as PAYE if IR35 got you?

I know there was someone on the forum - I'll have a search - who was a big advocate of company rather than personal contributions....

Might be obvious, but remember any money you spend from YOUR money (which has PAYE, NI paid on it) is money extracted from your company that cannot be spent on something else.

That money also contributes to the total amount you have earned, which takes you closer to the upper tax limit.

[css_jay99]

Yeh. Forgot about the mortgage idea too.

what is this mortgage idea?

[ASB]

what is this mortgage idea?

One mortgage idea is to place the company funds on deposit (in trust for the company) into an account which is offset against the mortgage. You don't pay mortgage interest, also there is no benefit from the money to you (because it's offset) and thus no BIK.

THEPUMA has posted on this before, opinion is divided about whether it will be effective though he does know what he is talking about. It would require a properly drafted and stamped trust deed.

[psychocandy]

One mortgage idea is to place the company funds on deposit (in trust for the company) into an account which is offset against the mortgage. You don't pay mortgage interest, also there is no benefit from the money to you (because it's offset) and thus no BIK.

THEPUMA has posted on this before, opinion is divided about whether it will be effective though he does know what he is talking about. It would require a properly drafted and stamped trust deed.

Or just paying off your mortgage rather than sticking the money in savings/pension thus saving yourself on mortgage interest.

[ASB]

Or just paying off your mortgage rather than sticking the money in savings/pension thus saving yourself on mortgage interest.

Yes, but paying down debt may not be the best option if obtaining the funds to pay the debt down causes extra taxation.

Lets assume:-

- you have 320k in the company
- your annual living costs (excluding mortgage) are 20k
- your mortgage has 140k principal

So, you pay 200k as a divi in one go. The company now 120k.

You get 43k with no tax to pay, 157k with 25% to pay = 118k + 43k = 161k.

You spend 20k on day to day, pay 140k redeeming the mortgage and are left over with 1k.

Years 2-7 you pay yourself 20k per year and use that on your day to day living. The company then has no money.


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Now try my scenario. The company puts enough of its funds on deposit to offset the mortgage interest.

Year 1. Draw 43k.

20k living, 23k off mortgage = 117k. Company has 277k left.

Company puts enough on deposit annulling your mortgage interest. Company puts balance on deposit elsewhere and makes a few quid.

Year 2. Draw 43k.

20k living, 23k off mortgage = 94k. Company has 234k left.

Year 3. Draw 43k.

20k living, 23k off mortgage = 71k. Company has 191k left.

Year 4. Draw 43k.

20k living, 23k off mortgage = 48k. Company has 148k left.

Year 5. Draw 43k.

20k living, 23k off mortgage = 25k. Company has 105k left.

Year 6. Draw 43k.

20k living, 23k off mortgage = 2k. Company has 62k left.

Year 7. Draw 22k.

20k living, 2k off mortgage = 0k. Company has 40k left.

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So, under my scenario its 40k better. Which obviously is the amount of higher rate tax that was paid on the large dividend to give the feel good factor of paying the mortgage off sooner.

Whilst I would entirely agree that paying down debt is generally good it is necessary to consider the additional costs that may be involved as a result of doing so (in this case tax).

The scenario above obviously depends upon a number of things:-

- The amount one actually needs to live on. If one can live on < 43k then there is scope to defer paying down debt.
- If it is not possible to offset without attracting BIK then these costs have to be factored in, since that is paying interest.