Using business reserves to offset mortgage

djm1972

Executive Summary
What is the most tax efficient way of using spare cash generated by your small business to offset your personal mortgage?

Additional Info
I'm currently a sole trader, and therefore I pay income tax on 100% of the profits of my business. I also have an offset mortgage, and any spare cash I have at the end of a month I save in the offset savings account associated with my mortgage account. All fair enough so far.

I don't currently earn enough to be VAT registered, or consider it worthwhile becoming a limited company; however I am wondering if there is a legal mechanism by which becoming a limited company I could be using pre-tax company reserves to offset my mortgage.

What it boils down to I think is; is it is legal to hold limited company funds in a "personal" bank account?

The funds would always be liquid and readily on hand to the "company". My thoughts are that it is not permissible as it would be tantamount to taking a salary or dividend payout, but i'd be interested if anybody could offer any insight into this.

My gut feeling is that for this to be allowed you would need to have your mortgage with bank that also offered a corporate reserve account (in your company's name of course) that could be offset linked to a personal mortgage, but something tells me even this would be seen as receiving a benefit that should really be taxed.

Any thoughts?

silvercar

I've been through all these deliberations, I even had a discussion with my business bank manager about it.

Nat West offer an offset account where you can offset your business account balance against your mortgage account. He gve me the impression this was quite innovative so I don't know if anyone else offers it.

I couldn't use this as my business is a limited company and you can't, apparently, offset your business account against your personal mortgage as they are separate legal entities.

If you do have a wholly owned limited company, you can take a directors loan out of it and put the money in your own offset and repay it when the company needs it. You would need to declare the benefit of this in your tax return and you will have a tax liability based on the "benefit" you receive from the use of the money. I think this would be the interest rate applied to the loan amount and charged at your marginal tax rate.