Originally posted by northernladuk
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Previously on "Early Mortgage Repayment - Extra Dividends vs Entrepreneurs Relief"
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Originally posted by youngguy View PostHow does this work in practice from an accounting perspective ? Ie what do you need to record?
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Some interesting posts and points of view. Considering the best course of action involves a fair amount of mystic meg crystal ball gazing. I am skeptical of continued house price inflation especially considering the location I have brought in (I've also been convinced the housing market was in a bubble for the last 10 years - hence buying relatively later in life - just turned 40).
I'm assuming that if there was a change in policy regarding entrepreneur relief there would be a window before the change came into effect, in a similar manner to the recent public sector IR35 reform, possibly an invalid assumption - I'm not up to speed with how often changes are made with immediate effect.
The potential private sector IR35 move would obviously have a big impact on my 'financial planning', lots of moving parts in trying to figure out the best course of action. I have in the past dabbled with a share portfolio, tending to invest in the falling knives, lost about 25k on Rockhopper, so now I just follow a single holding investment strategy with my entire SIPP in an All-world ETF fund.
I think for now I will consider my 2.5% 5 year fix as fairly cheap credit, continue building a warchest and try to find a good fixed term accounts/bonds to place my warchest in. This post has highlighted to me that there is no fixed 10 year plan - things change so it will require fairly regular re-evaluation. My main concern was whether I was missing a trick by focusing on being tax efficient and that potentially the mortgage compound interest saved by overpayment would be significantly greater than the cost of drawing extra dividends - I need to do some more number juggling but I'm fairly certain it isn't.
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Originally posted by danny1313 View Post
Business bank balance £100k retained profit earning 0% interest
Originally posted by danny1313 View PostPlugging this into my mortgage calculator assuming a 4.25% variable rate after the initial 5 year fixed term
Originally posted by danny1313 View Postand with my monthly repayments fixed (overpayment reducing term not monthly) indicates that my mortgage would be paid off in 8.5 years,
Originally posted by northernladuk View PostIMO leaving 50k in your company isn't enough of a warchest. I'd be quite happy leaving up to 100k in and then wondering what to do with the extra above that. Thinking about it from a warchest perspective would give you your answer IMHO.
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Originally posted by dingdong View PostGiven inflation is currently rising it's probably a good time to not pay your mortgage off early and let inflation reduce the real cost of the debt. Paying off mortgages early is not always a good idea.
The question of whether the tax laws will stay the same is a real concern - it seems that HMRC and the government no longer consider the 'risk' of working for yourself or being a business to be one they want to help mitigate through the tax system. I guess this means that everyone (employees, self-employed and small businesses) are no regarded as being part of the 'gig' economy. So don't expect entrepreneurs relief or MVL reliefs to stay around long.
PS - sorry to sound like an old fart.
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To be fair you don't have to leave the money in the company if it is tax efficient to get it out.
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Originally posted by northernladuk View PostIMO leaving 50k in your company isn't enough of a warchest.
That said, I'm more comfortable with 18 months, a year is my absolute minimum.
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What ChimpMaster and TheFaQQer said.
MVLs only became an option ~5 years ago. Every budget/Autumn statement we at MVLO half expect them to be killed off. They haven't yet, but relying on it still being an option unchanged from now in 8 years time is a bit daft IMHO.
Obviously I'm not saying MVLs are a bad option, just that planning one for 1-2 years down the line is ok if you bear in mind there's a risk it might not be there. No point planning beyond that, too many things could change.
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Given inflation is currently rising it's probably a good time to not pay your mortgage off early and let inflation reduce the real cost of the debt. Paying off mortgages early is not always a good idea.
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Personally, I would get the money out of the company and into something you control sooner rather than later. I certainly wouldn't rely on tax relief that's available today being available in 8 years time.
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You're letting the tail wag the dog.
Relax.
Be tax efficient and pay off lumps off your mortgage as and when you can.
Hopefully you won't have to go onto the lender's SVR of 4.25%. If rates stay low then you can remortgage.
I paid off my residential mortgage some time ago. Then I got bored and took 40% equity back out so that I could invest and spend it.
On top of that I have a warchest but I plan to MVL and retire from contracting within the next year or so. I might then pay off some of the mortgage or I might invest it further. Who knows. I'll worry about it when I get there.
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You should be able to get around 1% on business savings without too much trouble, especially if you are willing to lock up some of it for a while. You could keep £20K in easy access, tie up £20K for six months, put £40K into one year fixed rate, and £20K into two years fixed rate. That way, even if your entire income dried up, you'd have money coming in to keep you going for 2 1/2 years and you could probably get well over 1% on your savings. That's before tax, of course. But it does offset a significant chunk of the mortgage interest you save by paying the mortgage early, and given the tax cost, probably makes it not worth it in strict financial terms.
I hate debt, though. Sounds like you can probably easily live on £30K a year, if you needed to. I'd keep two years (£60K) in business savings, and out of the rest pay larger dividends and burn through that mortgage faster, even if it cost me some extra tax. That's just me, though, and I'm not saying it would be better financially.
Or you could get married, give her shares, and double the basic rate dividends you are paying. This has the added benefit that you'll soon have a mortgage-free house to give her when she divorces you.
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