Strategy for remortgage with LTD

Koksmanareikals

Hi,

I just took a mortgage on a fixed rate for 5 years. I took it as a self employed and now changed to limited company. I own 100% of shares and I am director. I believe during remortage banks will see me as a self employed anyway.

Now I am wondering how I should act with gained profits.

I am thinking to pay myself only minimum wage and pay myself dividends. Just to cover my living expenses and keep the rest of profit inside LTD. And when 2 years is left until fixed rate end start paying myself big chunks of dividends to make my last 2 year income high.

Is it good strategy to stick to? Or it doesn't matter and banks will look for limited company's profit during last 2 years?

I understand if I leave profits within limited company I risk higher dividends tax in a future and I just want to make sure this strategy makes sense.

Thank you in advance

silvercar

A good mortgage broker will know how to present this to a lender.

alanyau88

I don't quite understand what you are saying.  Are you saying that you have purchased a property in your personal name as a sole trader with a mortgage fixed for 5 years and now have changed your business to a limited company?  I don't understand why people don't speak to an accountant before making big business decisions.  I think you need to speak to an accountant before speaking to your current lender.  

Koksmanareikals

alanyau88 said:

I don't quite understand what you are saying.  Are you saying that you have purchased a property in your personal name as a sole trader with a mortgage fixed for 5 years and now have changed your business to a limited company?  I don't understand why people don't speak to an accountant before making big business decisions.  I think you need to speak to an accountant before speaking to your current lender.  

Yes, I have purchased a property in my name. At the time I was self employed sole trader. After completion I opened limited company and now work though limited company.

Now I start thinking how I should pay myself to avoid problems when fixed rate ends (2028) and if I have to do remortage.

My first thoughts was I should pay myself minimum salary + dividends just to cover my needs and keep remaining profits within LTD. And when 2 years left until fixed rate ends start paying myself big chunks of dividends to make my salary big. Because fixed rate ends 2028 it's hard to predict income at that time. So I thought it might be worth to save profits and pay it out closer when fixed rate ends.

I hope I explained it now. Thank you

Edi81

The other option is to stay with your current lender and just take a product switch. If you’re not borrowing any more or changing anything you can probably do it all online with no further checks. 

Koksmanareikals

Edi81 said:

The other option is to stay with your current lender and just take a product switch. If you’re not borrowing any more or changing anything you can probably do it all online with no further checks. 

Yes I know that nothing changes if you stay with current bank. I am not planning to borrow more. I just want to be prepared if there will be much better rate than current bank (Santander) offers.

MWT

Koksmanareikals said:

...And when 2 years left until fixed rate ends start paying myself big chunks of dividends to make my salary big.

Talk to your accountant and a broker, as the lenders are very much aware of the ability of a director with 100% ownership to manipulate their 'salary', so they are not just going to look at your payslips, they will need to see that your business can sustain the level of income you are taking in the long term and not just using up retained profits over a short period to create a fictional income level that cannot be maintained...

alanyau88

As MWT has said, creating a misleading income level for the past two years does not look good to lenders if they spot it and it's not too difficult to find out.  Speak to an accountant to find the most efficient way to lower your taxes and take it from there.  Better to be safe than sorry.

amnblog

All Lender will work from PAYE Salary and Dividends. Some with work on PAYE Salary and post tax profit.

This means you do not have to take the profit out to find a Lender to accept you. Whether the rates from that Lender are better than Santander at that time do not know. I image any difference will be of small consequence.

I tell my self employed clients do not make business or taxation decisions based on the likelihood of obtaining a mortgage.

dunstonh

I took it as a self employed and now changed to limited company. I own 100% of shares and I am director. I believe during remortage banks will see me as a self employed anyway.

They do even though you are not.  

I am thinking to pay myself only minimum wage and pay myself dividends. Just to cover my living expenses and keep the rest of profit inside LTD. And when 2 years is left until fixed rate end start paying myself big chunks of dividends to make my last 2 year income high.

They also look at gross profit and retained profits as salary and dividends can be manipulated.

Or it doesn't matter and banks will look for limited company's profit during last 2 years?

If it is just a change of company structure but its the same company apart from its legal status (i.e. you are doing the same thing) then they will look at pre and post changeover.

Now I start thinking how I should pay myself to avoid problems when fixed rate ends (2028) and if I have to do remortage.

Its likely product transfer will be viable and this wont be an issue.

My first thoughts was I should pay myself minimum salary + dividends just to cover my needs and keep remaining profits within LTD. And when 2 years left until fixed rate ends start paying myself big chunks of dividends to make my salary big. Because fixed rate ends 2028 it's hard to predict income at that time. So I thought it might be worth to save profits and pay it out closer when fixed rate ends.

You are over thinking it.   For example, Santander ask for turnover, gross profit, net profit, retained profits, salary and dividends.  i.e. the whole scenario.   As long as its trending in the right direction and the amounts stack up, the way you take the profits from the company doesn't matter.

Koksmanareikals

Thank you for advice!