Take Dividends to pay mortgage or leave it in Ltd Co?

Justtryingtoworkitout

Hi,

Can anyone help as I am very confused....

I run a Ltd co falling outside IR35. I am due to finish a fixed rate on my interest only mortgage soon and then will be allowed by the mortgage co to pay capital - yippee!!!

What's confusing me is this - should I continue on interest only thus keeping my dividends low and wait until the profits in the company account is sufficient to pay the balance off the mortgage....

OR

Take lump sum dividends periodically and pay them off my mortgage.

I have scoured the web for any advice and just can't find any - calculations that I have done seem to lean towards staying on interest only but surely reducing mortgage debt will be more satisfying and better if rates do rise.

Anyone with any ideas?

TrickyDicky101

If you are a higher rate taxpayer then you have a marginal rate of tax on dividends received of 25%. So, if without dividends you have an income below the higher rate threshold, you will minimise your income tax payable by making sure you don't go over the higher rate threshold (marginal rate of tax is 0% on dividend income up to the 40% rate). So it all depends on what your income is excluding dividends and how much your outstanding mortgage balance is (as to whether you can pay it all off in one go).

kingstreet

You haven't been able to pay off capital while on the fix? That's unusual. Most lenders allow a monthly capital repayment, or an aggregate of say 10% per annum to be repaid without penalty.

Changing to repayment will force you on to higher monthly payments over which you have no control. Once your fix ends, you'll be able to make whatever capital payments you choose, so that may be more flexible in your situation.

Paying some off regularly will obviously reduce the interest you pay, in preference to "saving up" in the company account to pay it all off, where the interest you get may be negligible.

anh1904

You need a creative accountant - corporation tax and where company deposits are stored (and depending on the articles of associuation what they are used for) will presumably all come into play?