Large Purchases

[BillHicksRIP]

I'm a bit piddled now so totally fed up with the backspace key, but, assuming you're taking a salary and dividends which will total ~44k and decide to go and pay off your mortgage with the money you've built up in the company over the years, do you just slap on an extra 25% knowing that the extra tax must be paid off the following year against your personal allowance?

[Sockpuppet]

I'm a bit piddled now so totally fed up with the backspace key, but, assuming you're taking a salary and dividends which will total ~44k and decide to go and pay off your mortgage with the money you've built up in the company over the years, do you just slap on an extra 25% knowing that the extra tax must be paid off the following year against your personal allowance?

No, work out what the interest is going to be. It takes a few years of compound interest to pay for that 25%

[Nathan SJD Accountancy]

I'm a bit piddled now so totally fed up with the backspace key, but, assuming you're taking a salary and dividends which will total ~44k and decide to go and pay off your mortgage with the money you've built up in the company over the years, do you just slap on an extra 25% knowing that the extra tax must be paid off the following year against your personal allowance?

Hi, I would agree with you slightly.

If your total earnings are £44K (higher tax bracket), and you decide to pay off a chunk of your mortgage from the company (treated as a dividend). The additional tax that will be payable to HMRC by the January following the end of the tax year that it was taken in will be 25% personally. This is of course assuming that your total earnings including the large amount you decided to pay off your mortage with does not put your earnings into the higher tax bracket (exceeding £150,000).

Do also be aware of the payments on account that will be due!

If you therefore needed an extra £80,000 (to pay off your mortgage). Pay out £80,000 (but keeping in mind that £20,000 will be payable to HMRC as personal tax by the following January).

Or, you could (assuming you still wanted £80,000). Pay out a dividend of £106,666 (£80,000 / 75%), spend the £80,000, and keep the remaining in a savings account ready for HMRC.

[BillHicksRIP]

Thanks for the info.

[Wanderer]

I'm a bit piddled now so totally fed up with the backspace key, but, assuming you're taking a salary and dividends which will total ~44k and decide to go and pay off your mortgage with the money you've built up in the company over the years, do you just slap on an extra 25% knowing that the extra tax must be paid off the following year against your personal allowance?

You should also consider closing the company and making a capital distribution, putting the money in to a pension or splitting the dividends with a spouse if they earn less than the higher rate tax limit.

[BillHicksRIP]

Yup, I have looked at that. Hopefully I'll be contracting for a while, but my circumstances are changing so am looking to take a chunk of the warchest out and needed to understand the personal tax implications. Thanks.