Options for a mortgage

[escapeUK]

It might be "fair" to say you're stating the obvious

It's not 2.25% it's 2.6% in my case, and in the case of the OP if they don't mind their company money being in a 3 month notice account.

P.S. Someone may come along and mention about just "trusting" the money to yourself in an offset mortgage. There's absolutely no evidence this has stood up to any HMRC scrutiny but there are people doing it.

I guess there is no evidence it hasnt either. I love how the government make interest rates 0.5% but think that I should work on them being 4%. Natwest dont even give me 0.1%.

I'll be going the offset way myself.

[Olly]

Well if you include the lost interest, will it not be fair, to also include the interest you save on the mortgage? I think interest saved would be a lot substantial amount than what you would miss out minus CT, as the AER/APR for the mortgage would be most certainly higher than 2.25%.

It might be "fair" to say you're stating the obvious

It's not 2.25% it's 2.6% in my case, and in the case of the OP if they don't mind their company money being in a 3 month notice account.

P.S. Someone may come along and mention about just "trusting" the money to yourself in an offset mortgage. There's absolutely no evidence this has stood up to any HMRC scrutiny but there are people doing it.

[rd409]

Greg,
Don't forget to mention, though it is pretty obvious I guess, that the real cost of the loan from your company isn't just 0.8%. It needs to include any interest lost.
NOT 0.8%

Well if you include the lost interest, will it not be fair, to also include the interest you save on the mortgage? I think interest saved would be a lot substantial amount than what you would miss out minus CT, as the AER/APR for the mortgage would be most certainly higher than 2.25%.

[Olly]

If you only get 0.01% interest, then it's nominal. I don't get 2.28%, that's a good rate.

Why don't you get 2.28%?

Oh..me bad....it's 2.25% sorry about that chaps

[Zoiderman]

If you only get 0.01% interest, then it's nominal. I don't get 2.28%, that's a good rate.

[Olly]

Greg,
Don't forget to mention, though it is pretty obvious I guess, that the real cost of the loan from your company isn't just 0.8%. It needs to include any interest lost.

What does a good offset mortgage cost these days? 3.89% maybe?
Investec are paying 2.23% interest on my business account - knock off the corp tax and that drops to 1.78% then add the corp tax from the loan at 0.8% and that gives you 2.58% effective "loan from Ltd" rate NOT 0.8%

[Greg@CapitalCity]

Hi ST,

No problem, some more answers for you;
(1) Yes, I mean your company;
(2) Only paid once;
(3) This is bookkeeping. No actually transfer of funds needs to take place so long as the loan is taken from retained earnings (which is sounds like it will in your case). So at some point this loan will need to repaid, and this would mean converting it to a dividend payment or a capital distribution (if you close the company using ESC C16). The best scenario will depend on your personal tax position, so unless you go through a long period without work, the best time to consider this is when you close down your company.

The HMRC produce a very good Toolkit on Directors Loans - its a bit detailed, but take a look at www.hmrc.gov.uk/agents/toolkits/dla.pdf

[Stumped]

Options for a mortgage

Usually owning a house through your business gives rise to a cluster of complications - probably the first one would be getting a mortgage approved for your company. Usually this is the first roadblock which will force most contractors to have to get a mortgage personally. And after considering capital gains, taxable benefits, owning the house personally is usually the best option anyway.

.........

The implications of taking a £40,000 loan from your business are;
(1) You need to pay interest to your business at a rate of 4% to avoid a beneficial loan charge through your P11D. This amounts to £1,600 per year, on which your company will pay 20% corporation tax (£320). So the NET cost of your loan is 320/40000 = 0.8% (which is much better than what any bank can offer you - so also give some thought to loaning a higher amount from your business);
(2) You will also need to pay 25% of the loan balance through your corporation tax return relevant to the period you took the loan. Since you have a high level of retained earnings, your company will be able to absorb this £10,000 tax charge OK. Its a temporary form of tax, and the £10,000 is refunded back to you when the loan is repaid (or when the company is closed, and the loan balance is written off to either dividends or a capital gain).

Seems like a good answer, and am interested in knowing more.

Interested in knowing what is meant by point 2 .
- When you say "you", do you mean "your company"?
- 25% of loan balance - Corp tax - Is this a 1 time charge or is it each year?
- Write off of the loan ... divs or capital gain. Can you say a bit more about this? How is the loan (capital) actually repaid?

Finally any good reading sources on this?

Thanks for any clarification
St.

[kaiser78]

You probably want to get a flexible mortgage too so you can pay it off any time you want.

Don't let on that you have the means to pay almost all of it off though, ironically the banks might not lend money if the mortgage is going to be less than a certain amount.

Flexible offset ideally.

[Wanderer]

You probably want to get a flexible mortgage too so you can pay it off any time you want.

Don't let on that you have the means to pay almost all of it off though, ironically the banks might not lend money if the mortgage is going to be less than a certain amount.

[Greg@CapitalCity]

Usually owning a house through your business gives rise to a cluster of complications - probably the first one would be getting a mortgage approved for your company. Usually this is the first roadblock which will force most contractors to have to get a mortgage personally. And after considering capital gains, taxable benefits, owning the house personally is usually the best option anyway.

With regards to making use of your company funds, often the best option is to loan yourself the money. Also there are important implications with this (see below), but its the best use of your company money, and will allow you to get a superb mortgage rate. So if you loaned £40,000 to yourself from your business, and used £10,000 of savings, thats a hefty 40% deposit. It still leaves £50,000 of retained earnings in your business as a war chest, and you will enjoy the capital gains benefits of owing the house personally. If the spotty credit history gives you problems see if the bank have a deposit threshold above which this becomes less of a concern for them. You're in the fortunate position of being able to afford a large deposit if need be.

The implications of taking a £40,000 loan from your business are;
(1) You need to pay interest to your business at a rate of 4% to avoid a beneficial loan charge through your P11D. This amounts to £1,600 per year, on which your company will pay 20% corporation tax (£320). So the NET cost of your loan is 320/40000 = 0.8% (which is much better than what any bank can offer you - so also give some thought to loaning a higher amount from your business);
(2) You will also need to pay 25% of the loan balance through your corporation tax return relevant to the period you took the loan. Since you have a high level of retained earnings, your company will be able to absorb this £10,000 tax charge OK. Its a temporary form of tax, and the £10,000 is refunded back to you when the loan is repaid (or when the company is closed, and the loan balance is written off to either dividends or a capital gain).

[northernladuk]

Well you are going to pay top dollar withdrawing the money, way in to the top bracket so that going to be expensive. With mortgages down to 2 ro 3% if you shop around and have the right deposit I wouldn't think about withdrawing money at 20%+ tax when you are only saving a few percent.

Find a good mortgage, workout how much deposit you need, if you really have to divi out the smallest amount to make the deposit and then just start paying a normal mortgage. Be sure to get one that allows you to over pay if you really want to make the most of your money.

Just remember who owns what. This will be your house so buy it with your money. Leave the company out of it.

Getting a mortgage as a contractor isn't a problem, the standard mortgage app asks about companies and allows your accountants to prove how much money you have in your business and how much you pay yourself so isn't going to count against you.

[Kanye]

I'm a contractor on a reasonably secure contract at the minute.

I'd like to buy a house that is on the market for £115k.

I have £10k personal savings and around £90k retained profit in the company after accounting for tax.

How am I best to do the purchase?

Withdraw all of the money from my company and take a big tax & student loan hit?
A loan or mortgage to the limited company and buy through there?
Loan my own personal money into the company?
Take a personal mortgage with small deposit (difficult due to spotty personal credit rating and self employment)

I'm nervous leaving the company account completely empty so my preferred route would be maybe a 1 year £20k limited company mortgage. I'm not sure if they are designed for contractors though?

Any thoughts?