Being Tax Efficient v Getting Mortgage


Louise Misiewicz

Tax Consultant

4th March 2014

Posted by Simon Misiewicz on 12th February 2014

Do you like paying minimal amount of tax?

Are you looking to get a mortgage for your own home or Buy To Lets?

We are all looking to be tax efficient whilst having the ability to get a mortgage for our investments as well as our own home.

However, let me take you though a real life experience that may alter the view of “being tax efficient is always good”. In fact this real life experience is my own so I know that the facts are correct and I am, as always, willing to share my experiences.

I have a limited company via Optimise Accountants and another company called Optimise Properties. It pays me a minimum wage and dividends of up to £30K. My wife Louise is also paid the same amount of money. The business has more profits but we choose to keep it within the company so that we can do flips to build up the cash.

This strategy is clearly tax efficient as I hardly pay any national insurance and my tax is kept at 20%.

Then, we recently discovered a problem with this. We are looking to start a family and we are looking for what I wish to call “our forever home”. I say this because I live in hope that we do not have to move again.

A lot of mortgage lenders we have spoken to are willing to provide us with a mortgage of four times our earnings. This gives us a total of £280,000 (£30,000 X 2 X 4). This means even with a 90% mortgage we are looking at properties around £325,000. I don’t know if any of you know Colston Basset where we wish to live but you are not likely to buy a house for less than £400,000. This is where being tax efficient is not always the best thing in life.

We are now having to wait another 2-3 years for us to keep paying ourselves a wage of over £40,000 (£10K wages and £30K dividends) in order to get a mortgage. Imagine if you were looking for a property over £500K you would then have to pay 32.5% in tax on your dividends once you reach the high tax earning bracket. This is additional tax to pay for the sake of getting a mortgage.

If you are planning on getting a mortgage with a high value you may wish to ensure that you are being paid enough from your employers or paying yourself enough if you have a business.

You will need to build up credibility within your Limited Company business of 2-3 years of accounts that show enough healthy profits to pay you a wage plus your dividends. After all, you can only pay dividends to yourself if you have enough profits to do so.

All in all as Lisa Orme (Williams) would famously say “Being tax efficient is like the tail wagging the dog, you need to look at your strategy of property investing before looking at your tax strategy”. Enough said and how true, as I have painfully realised in the recent past (1).

If you are looking for an accountant or thinking of changing your current accountant because they do not understand property investing then please contact Selina on to book in your free “Property Finance & Tax Mastery” free one to one consultancy slot.

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