Ever wondered if you could pay your mortgage through your business? We understand why you might be thinking about it, but is it actually doable?
You can’t directly pay for your mortgage through your company’s bank account, but you may be able to contribute in other ways – at least in the short term. Taking a higher salary, dividend payments, or even a company loan are a few examples, but beware, as they can come with tax consequences.
It’s important to remember that your limited company is a separate entity from you (the owner). This means that your business’s money doesn’t really belong to you. While this is great for keeping you safe from being financially liable if your company ever gets into financial trouble, it does mean you can’t spend the money as freely as you might wish. The money only becomes yours when you transfer it from the company’s bank account into your own personal bank account.
This blog explores the possibilities of using company money to pay your mortgage in more detail. We look at the different types of mortgages you could consider contributing towards, tax implications and the best way to take money out of your business for personal use. Keep reading or get in touch with Guildford Accounting today to learn more.
What types of mortgages can be paid through a limited company?
While most mortgages are not intended to be covered by limited company funds, there are a couple of ways you can be more financially efficient when it comes to paying a mortgage.
Personal mortgage
Although it would be very useful, most lenders won’t allow you to pay for your mortgage directly through your company. But, you might be able to reduce the payments if you use your property for the business.
Buy-to-let mortgages
If you want to diversify your income, you could get a buy-to-let mortgage through your limited company. You should consider the responsibility, effort and financial impact of this venture before you jump in, as you will need to manage the property and pay tax on any income.
Are mortgage payments tax deductible for a limited company?
Personal mortgage payments are not typically tax deductible. The only time they are is if you are running your business out of your home or letting property to tenants, in which case you may be entitled to offset the mortgage interest against your income.
While you may be able to reduce your tax bill in the short term, using your property for your business can result in you being liable to pay Capital Gains Tax if you come to sell your property in the future.
For more information, read our blog about how you can reduce Capital Gains Tax when you sell a property.
How can you withdraw money from your company to pay off your mortgage?
Unfortunately, you can’t just pay your mortgage directly from your business bank account. Not only would this go against the bank’s rules, but it would also be risky for your finances.
If you really want to use money from your company to make a mortgage payment, the most efficient way to do this is by paying yourself a salary, dividends, or a director’s loan. Any other way can result in hefty tax charges.
Director loans
You could take a loan from your company, which is also called a director’s loan. Depending on how much you borrow and the repayment timeframe, you could end up paying tax on the loan, so it’s a good idea to keep this in mind.
There are a couple of rules surrounding director’s loans. Firstly, you must repay the director’s loan within 9 months of your company’s year-end to avoid any nasty Corporation Tax charges. And, secondly, you must keep records of any loans you take from the company. Not only does this keep HMRC content, but it also helps you manage your debt responsibilities.
Dividends
If your business has enough profits, you can also take a dividend. This is a payment that is determined by the company’s profits and decided upon by the board of directors. It is then paid to the company’s shareholders, usually quarterly.
How would this affect a director’s income tax?
Dividends are considered taxable. However, the amount of tax you have to pay depends on your overall income. You shouldn’t have to pay tax on dividends so long as it doesn’t exceed your dividend allowance or personal allowance.
Are there alternative options to making mortgage payments via a limited company?
Generally, there isn’t a one-way route to paying your mortgage through your limited company. You could consider purchasing property through your limited company for business or rental purposes, but again, this isn’t directly contributing towards your own home.
Using a combination of the previously discussed methods and looking for tax-efficient ways to maximise your income is a straightforward way to improve your financial situation and repay your personal mortgage.
Looking for tax-efficient ways to pay off your mortgage? Get in touch
At Guildford Accounting, we love to empower business owners with the right tools and knowledge to become financially stress-free. We understand what it’s like to be a busy business owner and have little time for yourself, let alone for your finances.
Our accounting services are there to take the burden away and give you back some of your precious time to focus on other important things. Whether you’re looking to improve your tax efficiency or step into a new area, like property investment, our experienced accountants will be happy to help.
Get in touch today for a friendly chat about your business.
Frequently asked questions about mortgaging a property through a business
Should I keep cash in my company or pay off my mortgage?
Deciding how to use money from your company is a very personal decision. You should think about your own goals vs. your company’s goals.
If you want to grow your company and already have a healthy financial situation, you should consider keeping any extra money and reinvesting it in your business. Let’s not forget that your business might not have the spare funds in the first place, especially if there are high overhead costs to think about.
However, in some instances, it can be beneficial to borrow money from your company to improve your own financial situation. Paying off your mortgage early can save you from paying high interest rates, and if you’re struggling financially, you could use the money to pay bills in the short term.
How much of my mortgage can I claim as a business expense in the UK?
To claim business expenses, they have to contribute to the running of your business. While you cannot claim your entire mortgage payments as a business expense in the UK, if you run a business from your own property, you might be able to claim some of the mortgage interest. However, the property has to be used exclusively for business purposes.
Can you pay an employee’s mortgage payments through the business?
You can support an employee with their mortgage payments by providing them with a salary increase or a Benefit in Kind or by making salary sacrifice arrangements, which can give them additional funds towards their mortgage. These benefits will effectively be like getting taxable income and will usually be subject to tax and NI contributions that can affect both the company and the employee.
Alternatively, you can offer a company loan to help cover the mortgage payments. You can usually charge interest (if you wish to) or provide an interest-free loan. However, it is really important to consider the risk and potential tax implications of loaning money to an employee through your business.
