If there is more spare money in your company bank account, could you use the money to help repay your mortgage?
We will use the example of a business with a 31 December 2010 year end and you borrow the money on 1 January 2011.
This planning only really works if you have an offset type of mortgage. Let’s say you borrow £100,000 from your company and deposit the money in the private deposit account that is used to offset against your mortgage. You are paying less interest on your loan for as long as the money stays in your private deposit account. This is for a maximum of 21 months.
You withdraw the money from your deposit account in September 2012 and make sure you have repaid the company loan in full by 30 September 2012.
This is very important because if you are a day late repaying the money, your company will have an unwelcome tax bill of £25,000.
This planning will give you a personal tax bill of £2,800 if you are a 40% taxpayer, and your company will also have to pay about £900 in additional National Insurance – a total tax bill of about £3,700.
If your mortgage interest rate is 4%, you will save about £7,000 in mortgage interest over 21 months, a substantial overall saving.
The net saving after deducting the extra tax you will pay is £3,300.
The company could then make a further loan to you on 1 January 2013 and you could repeat the process.
You need to take proper professional advice on the documentation needed to make this planning work properly. You should only use funds that your company does not need for working capital.
Read my other recent posting on borrowing money from your company here.
Feel free to contact me if you have any comments on this.