36 - huge mortgage

Brendan Burgess

Founder
Messages
38,093
7. Build up cash reserve in company
7. I think this could be a better option than funelling money into the directors pension yearly as I was intending to do. I need to better understand the rules around backdating contributions.
This is the wrong idea. You should pay the profits each year as income and use the net receipts to pay down your mortgage.

Building up cash in a company is bad. You pay Corporation Tax on the profits retained each year. Then you pay income tax (or CGT) when you get them into your hands eventually.

I think the point made was that with a company, you are not subject to the use it or lose it pension rules facing employees and the self-employed.

In other words, if you focus on getting your mortgage down to a safe level over the next 5 years, you will have lost some of the opportunity to contribute to a pension from your salaries. However, at that stage, you can stuff the pension from the company's profits.

Brendan
 

Blackrock1

Frequent Poster
Messages
410
It can be hard, if you are a high earner and high achiever to step away from that
yes, especially when you are relatively young, this talk of downsizing isnt really sensible, i assume you are in the house you want to be in, and you can afford it.

if i was you id rather the mortgage was a bit lower, but that should be achievable in the medium term.
 

North Star

Frequent Poster
Messages
224
This is the wrong idea. You should pay the profits each year as income and use the net receipts to pay down your mortgage.
As the OP has the benefit of a PAYE job and a Ltd company, there are options to build up reserves in the company and look at options such as Entrepreneurial relief, Retirement relief , termination payments pension funding, and liquidation at CGT rates etc to get funds out of the company in a much more tax efficient manner. Build up the reserves in the company and invest in the company name if you so wish ( i.e. treat it as a pension to generate some returns ) and at some point down the road you may well be able to generate a large lump sum to materially pay down mortgage debt rather than in increments when you have already paid an effective tax rate of 50%.
As the reserves in the company are liquid you have the flexibility to change your strategy if required and pay yourself a salary in any year you so wish.
The tax efficiency will reduce the time it takes to become mortgage free instead of paying down debt out of after tax funds.

Just a different approach to meet the OP's objectives

Vincent
 
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