What should we/can we do?

Laws777

Hi all, can anyone help?

Current mortgage of 161k, house value 182k - so what 11% LTV. On NR's SVR.

Husband is a contractor. I now understand what 'money tied up in the business' means. We want to get the LTV to 25% and get into an offset mortgage.

But to do this, we need to close the current business to gain access to the business profits, paying minimal tax. This will also free up 15k to offset. This will join 10k saving.

Obviously though, if we close the company, we don't have the necessary accounts needed to be accepted for a mortgage anywhere. But if we don't close the company we don't have the money to raise the required deposit. Catch 22 I suppose is that phrase!

We could plow in the 10k savings we have but DH is on short term contracts that COULD end anytime, having said this he's been in the original short term contract now for 18 months and signed until June but we can't risk locking away fund we may need if the contract ends suddenly.

So frustrating. If we access the business money willy nilly I understand we will end up paying equivelant of 50% tax and I just can't bring myself to do it.

Any advise would be much appreciated. Thank you!

beecher2

You have an LTV of 88%
Overpay and save until you can afford to get the 75% LTV mortgage you have your eye on. go onto the debt free wannabee forums for help in cutting back on your household expenditure in order to save.

Laws777

Thank you.

Quite able to save and do so but 45k tied up in a company, not earning much in the way of interest is surely begging to be released and put into an offset.

Obviously the SVR will go up sooner or later (sooner if we all believe the news) - whatever we save will be used as the increase for our minimum mortgage payments.

Am I the only one that thinks its a shame not to use what we potentially have?

Burridge60

Laws777 wrote: »

Husband is a contractor. I now understand what 'money tied up in the business' means.....................we need to close the current business to gain access to the business profits, paying minimal tax. This will also free up 15k to offset. This will join 10k saving.

Do you mean a contractor that has SC60s and works for someone else in the construction industry and has tax and NI deducted by his "employer".

or someone that submits tenders for work with the council under a contract.

The difference means a lot to a lender and to the statement with regard to capital tied up in the business.

Is there a reason why you are with Northern Rock and not a lender that had an Offset product. Northern Rock always marketed their mortgages as flexible and that you could over pay and borrow the overpayments back. Check this out with them before you overpay but you have close to an Offset already.

Moneyadvisor

Why do you need to close the business to access the cash? Be careful overpaying to a NR Flexible with a view to borrowing back. You were supposedly able to do this no questions asked as long as you were not in arrears. However I am seeing situations where people are being refused access to their overpayments.

Laws777

Thank you for your replies.

DH is the director, shareholder and an employee of the company but only drawing a very small salary (for tax purposes) and making up the rest of our income with dividends. This has already ruled out moving to the First Direct offset because they don't accept the dividends as a form of income, meaning our annual income is £7200!

Well we are one of those to have a Together mortgage with NR! At the time, thank the lord for it, we borrowed 110% LTV to enable us to get all debts into the mortgage. Sine then we have reduced the LTV back down to the current 88% but obviously now though, we are paying the price as so many are and finding the increased 25% deposits difficult to find. Without withdrawing the profits from the company we don't have the funds to reduce the LTV.

I understand that if we simply draw the business profits out of the business it will take us over the 'low' rate of tax into paying 50% tax. We don't want to be hit with a huge tax bill in the subsequent years even though we can see an offset will work best for our money but as I say, catch 22!

I think we need to sit down with our accountant, we are very happy with him, our tax bill this year was much nicer than expected but I just don't understand the whys and wherefores of it all. Just thought maybe someone had an idea what didn't know anything about...

getmore4less

Not clear why you need/benifit from an offset.

Just extract salary/dividends upto 40% tax(£43,875) and overpay.

Use the £10k savings, there is enough retained money to keep paying him his salary and dividends.

CloudCuckooLand

You can't really expect to have a "much nicer tax bill than expected", and have all the income/cash in your hands at the same time.

Its about choice/balance. You can lean more one way that the other, if you so choose.

Meeper

You want to have your cake and eat it. Sorry, doesn't work that way.

You are legitimately avoiding taxation through drawing the income via dividends, which is fine, but then you expect lenders to take all of your income into account when you are exploiting the system in other ways.

If I were you, I'd get a better accountant. Put the company into joint names and have both of you as directors. That way you can both get the small basic salary and take half of the dividends each, leaving you both as basic rate taxpayers instead of higher. Obviously this doesn't work so well if you are also employed already, but it's an option if you are not.

smartgirl123

When you liquidate a limited company you have to take a number of undertakings one of which is that you are ceasing to trade. If you want to close the company, take the cash out and open a new one, it is tax evasion and Inland Revenue is likely to come after you for the tax that you should have paid and even bar you as a director.

Speak to your accountant to see what they suggest.

The only two options that I can see is:

1) Take out dividends and pay tax. The tax will be lower than most of us pay, so you make a saving already
2) Delay house purchase

There is no catch 22 here, you are creating it by wanting to be in win win situation.

Laws777

We do not need to change our accountant.

We are both directors of the company. Doing everything and no more than we are being advised by our accoutant, an ex tax inspector.

My question has only really one answer and that is that we cannot close the company to access the funds without paying less than half of my husbands hard earned wage (which means we spend the whole week apart) to the tax man and without doing that we cannot reduce the LTV on our current mortgage. It simply can't be done.

DH has worked for 23 years paying higher rate tax and now we are legitamatley paying less. If the person who advised we are paying less tax than most are and sounding a little peeved by it, maybe you should change professions as my husband was forced to do 18 months ago when he was made redundant.

We are simply trying to make what savings we have and business profit work for us. I had already said we cannot afford to LOCK away all the money we have because with 3 children and a husband in a job that can end at any time, it would be completley irresponsible.

We aren't buying another property, just trying to pay as little interest on the current mortgage as possible - hence the offset mortgage and eagerness to move from the SVR we are on and to something else before all interests rate rise.

Sorry but criticism to someone asking, on a money saving forum, how to save money is unnecessary and certainly will make me think about posting a question again.