Sensible tax planning is absolutely key in order to make the most from your contracting career, however if you want to secure a mortgage, most tax efficient strategies can work against you.
We have blogged before about how many limited company directors choose to take a very low salary and then receive dividends from the company’s profits which are free from national insurance. However, some mortgage lenders only look at the low salary payments when calculating a client’s borrowing limit and this can seriously hinder one’s chances of securing that dream home!
At a4c we work with a team of independent financial advisors who are specialists in contractor mortgages. They can arrange a mortgage on your behalf based on a multiple of your entire contract earnings and not just the Taxable Element. That’s right, NO Accounts, Payslips, P60’s, SA302’s or Tax Returns.
As a general rule of thumb, you can compute the typical borrowing potential as follows:
‘Current contract rate’ x 5 days x 48 weeks per year x 4.5 times. Thus, at £300 per day for a five day week, you may be eligible for a £324,000 mortgage. *Note, a contractor will need to provide a copy of their contract, detailing the terms of their assignment and bank statements confirming their contract earnings.
getting it right first time…
Many contractors have been let down by non-specialist advisors approaching the wrong lender or badly packaging the mortgage application. As each unsuccessful application leaves a footprint on the borrower’s credit report this can make things more difficult for future applications. Therefore it is essential to get it right from the start.