Buying shared ownership as self-employed - not enough income on paper...

heidiann

As the subject title mentions, I'm trying to buy a shared ownership property but I'm running into an issue because I've not paid myself a high enough salary from my limited company to meet the requirement for the mortgage.

So on paper, my personal accounts show that I have not made enough but there is plenty of money left in my business to reflect my overall earnings.

Apparently the mortgage advisor needs an official letter from the HMRC which would show only the personal monies (not the company monies).

Is there a way around this?

dancing_star

heidiann wrote: »

So on paper, my personal accounts show that I have not made enough but there is plenty of money left in my business to reflect my overall earnings.

You say your salary is too low - what about dividends? If your company has retained (distributable) profits it may declare dividends.



If you withdraw from your director's loan account to pay your mortgage, and this leaves you owing money to the company, the company pays (temporary) tax on the beneficial loan. This is why YOUR income, not your company's retained earnings, are being assessed - you're buying the property, the company isn't.

Apparently the mortgage advisor needs an official letter from the HMRC which would show only the personal monies (not the company monies).

You're probably referring to an SA302 which shows your income from all streams - salary, dividends, interest, other income etc etc.



Some mortgage providers also require an accountant's certificate detailing your company's performance and balance sheet totals for the last three years.



No idea if there's any alternatives, just hoping the above explains the reasons behind it all.

ACG

Some lenders will work of PAYE + net profits, others will work off PAYE + Dividends. If you are able to find a lender off the net profit then that may help you in this situation.

NewShadow

heidiann wrote: »

... I've not paid myself a high enough salary from my limited company to meet the requirement for the mortgage.

So on paper, my personal accounts show that I have not made enough but there is plenty of money left in my business to reflect my overall earnings.

They aren't your earnings - they are the companies earnings.

Silly question - other than for tax avoidance purposes - is there a reason why you couldn't pay yourself a higher salary if the business can afford the extra cost?

trailingspouse

My understanding is that you need three years audited accounts - certainly that was the case 5 years ago when we got our mortgage.


You need to stop thinking of the business as an extension of you. As a limited company it is a separate entity, so the money in the business doesn't become 'your' money until you either pay it to yourself as salary or declare a dividend.



You also need to start thinking ahead - how much does the lender say would be 'enough' salary (or salary + dividends), and is it feasible to pay yourself that amount out of the business? And can you do it consistently for 3 years+? If not, then the lender is quite right not to lend you the money.


Have you discussed your plans with your accountant? I'm surprised they haven't advised you to take more out of the business with this end in view, if the funds are there.