Buying a house with a large deposit

[chriseverclear]

Hi Everyone,

I was wondering if anyone can help. I just started contracting a couple of months ago. The money is very good but the problem that i have is dividend. I am planning to buy a house in a few months. According to my accountant, i can also use my dividend which cannot exceed my threshold or else i am going to be taxed additionally. As you know, house price for a house is increasing. Also, you need a large deposit in order to get a good interest rate. I am trying to put as much money on a house. What is the best way to increase my deposit? Is there any structure i can use in order to increase my deposit?

I don't mind hearing if there are any schemes out there.

[cojak]

Accountants will be along to give you their considered opinion on your question, but I'll just point you to a couple of posts:

HMRC Enquiry letters on loans from EBT schemes

And

Basic advice when running your own business

Particularly the post

Keep Corporation Tax and VAT in a separate pot. It does not belong to you.

Wait 6 months and get your deposit out legally then.

[JoJoGabor]

Your accountant will be able to tell you how much retained profit is available in your business. Take all of this out. If the dividend combined with your salary for the year is over £42k Ish you will pay an additional 22.5% tax on anything over the £42k. If you need the money, take it out.

I take the majority out anyway as I can invest it and make a larger return outside of my business. You can calculate this for your own circumstances using excel.

[Kanye]

I bought mine with a directors loan which will be converted to dividends in April 2013 and April 2014. It's a good way of avoiding the need to take huge dividends in a single tax year.

[northernladuk]

I bought mine with a directors loan which will be converted to dividends in April 2013 and April 2014. It's a good way of avoiding the need to take huge dividends in a single tax year.

What do you live off those two years then if you don't mind me asking? Or is it only part of your yearly dividends in each year? And the 25% tax thingy when it is still open after year end is covered?

[Jessica@WhiteFieldTax]

What do you live off those two years then if you don't mind me asking? Or is it only part of your yearly dividends in each year? And the 25% tax thingy when it is still open after year end is covered?

Yes, I was wondering as well!

[chriseverclear]

Thank for the advice. I will do a bit more research.

[chriseverclear]

Director Loan

What do you live off those two years then if you don't mind me asking? Or is it only part of your yearly dividends in each year? And the 25% tax thingy when it is still open after year end is covered?

Thank you! I will do a bit more research on the Directory Loan.

[northernladuk]

Thank you! I will do a bit more research on the Directory Loan.

I wouldn't... You will be wasting your time.....

And on top of that being a new contractor you will have nothing to loan so wouldn't bother again. Pushing the edge without a warchest or any contract experience under your belt is suicide IMO. You loan yourself the money, can't get another contract, can't pay it back, can't pay your VAT, spent CT money, lose house.... You get the picture....

[Kanye]

Yes, I was wondering as well!

I bought the flat for cash so I'm hoping I can have a few cheap years now & keep living expenses < 40k.

Even if that doesn't happen (which is more than a small chance!), I can spread the pain over 2-3 years instead of 1 that would have touched into 50% tax.

Even if I take the lot as a divi on April 2nd, tax won't be payable till January 2015 because of how the dates fall.

My wife also stopped working giving me more potential for income splitting than I have had previously.

With the 25% payment thing for directors loans I might weight it more to this first year to be done with it.

I would advise this path to other contractors where it fits their lifestyle. Save up, buy a dump for cash using this method of extracting capital, and then your ability to save and reduce the figure you *need* to take from your LTD is boosted when you aren't paying £1000+ in rent or mortgage. If you can have a few cheap years it can be a really tax efficient.

My only problem is by the time I have cleared the tax overhead I will have a huge amount accrued in the company if I keep invoicing. This is a arguably a good problem to have though!