Taking extra dividends to buy properry

[heyya99]

If you were buying property, is it best to have a bigger deposit, lower repayments but bigger dividend tax bill

or

higher repayments, lower deposit but lower dividend tax bill?

I know it's subjective without having figures at hand but is there a rule of thumb?

[PerfectStorm]

My opinion at this time of year is that "a tax deffered is a tax saved" - IF you can hang on til April and take money out then and find yourself out of contract, at least you won't have paid tax on some/all of the money you took out.

However, if taking the money out during the course of a normal working year will cause you to go into the higher rate (for example), then doing so will be cheaper before April than after when the new tax rules come in.

So it depends on your likelihood to have or find work into the next year, I'd say.

[ChimpMaster]

You could consider using a director's loan to tide you over into the following tax year and then repay it with a dividend distribution.

[PerfectStorm]

You could consider using a director's loan to tide you over into the following tax year and then repay it with a dividend distribution.

I've thought about this too. Would I be right in thinking that it essentially allows you to pull in an extra £10k of untaxed distribution into this year as long as you pay it back within the 9 months?

[jamesbrown]

It really depends on the scenario. However, there are certain statements that can be made. It will be cheaper to pay higher rate tax on a dividend taken this year than next year. It will even be cheaper to pay a higher rate dividend up to the additional rate threshold, after accounting for the loss of any personal allowance, than taking a basic rate dividend next year, as the additional tax associated with the removal of the personal allowance is less than 7.5% of the 50k taken between 100k and 150k. Bottom line, if you're planning to be a higher rate tax payer next year and there's a decent chance you'll need to take a further dividend, take it this year rather than next.

[heyya99]

It really depends on the scenario. However, there are certain statements that can be made. It will be cheaper to pay higher rate tax on a dividend taken this year than next year. It will even be cheaper to pay a higher rate dividend up to the additional rate threshold, after accounting for the loss of any personal allowance, than taking a basic rate dividend next year, as the additional tax associated with the removal of the personal allowance is less than 7.5% of the 50k taken between 100k and 150k. Bottom line, if you're planning to be a higher rate tax payer next year and there's a decent chance you'll need to take a further dividend, take it this year rather than next.

When I've made my purchase, I will be returning to only taking the salary + tax free dividends next year, as I have always done.

[northernladuk]

I've thought about this too. Would I be right in thinking that it essentially allows you to pull in an extra £10k of untaxed distribution into this year as long as you pay it back within the 9 months?

You probably know but it's 9 months from the end if that tax year... Not 9 months from when you take the loan.

[jamesbrown]

When I've made my purchase, I will be returning to only taking the salary + tax free dividends next year, as I have always done.

There are no tax-free dividends next year, unless you're planning to keep within the 5k nil-rate allowance.

Without running specific numbers, you're wasting your time. The only "rule of thumb" is that you'll be paying an additional 7.5% marginal rate on any dividend above 5k from next year. Obviously, it's cheaper to pay a basic rate dividend at zero or 7.5% than a higher rate dividend at either 25% or 32.5%. The elements of the problem are obvious. Beyond the obvious, you're asking us to speculate on very little.

[SueEllen]

I know it's subjective without having figures at hand but is there a rule of thumb?

The rule of thumb is to get the mortgage at the lowest interest rate possible but still ensuring you have enough money to pay the mortgage if you are out of contract for the next 9 months.

Depending on the mortgage provider you use they will look at your accounts and retained profit to assert that you have enough money to cover the mortgage repayments for one year plus.

[filthy1980]

in a similar situation to OP here

in the middle of a new purchase was planning on putting down 20% and using remaining savings to add some value to the property with extensions etc, thought i would need to draw additional dividends to cover some of work

accountant advised it was probably better to only put down 5% / 10% and retaine as much cash as possible, then look for a new mortgage deal in 2 years to bring monthly payments down to desired levels