FX Finance Fitness Column #4
Issued on behalf of FinanceXchange
THERE’S an old saying in business that you can take with one hand – and give with the other. And, when it comes to moving your money around to help your business grow – or to boost your own personal finances – then now might well be the time for that saying to prove its worth.
There is, of course, nothing to stop a business owner from using personal wealth to inject some extra life into his or her enterprise. Added funds could be needed for a variety of reasons – to help new research and development, fund a new product, add new staff to the payroll, finance expansion plans or even to provide support for an ailing business.
Neither is there anything untoward in making the most of your business assets to benefit your own personal finances. In fact, it can sometimes make a lot of financial sense. For example, taking company profits – or temporary surplus funds like tax money – and placing them on deposit to offset personal borrowings means you can use business finance to reduce expensive personal monthly mortgage payments.
We recently arranged a commercial mortgage of about £200,000 for a client in the Swindon area who owns business premises worth £400,000, but with no business mortgage and a personal home worth £300,000 on a mortgage of £200,000. The business was making profits of £30,000 so we switched his personal mortgage to a commercial mortgage and he is now reaping the benefits of paying less tax.
Not only has this paid off his personal mortgage, but his home is free of liability and effectively ‘ring-fenced’ with the new mortgage repayments on his commercial mortgage off-setting the profits made in his business. In cases like this, though, it is crucial that the business owner’s home is not used as security against the business mortgage.
This is a far more tax-efficient way for a business owner to be spending his/her money. If tax was paid on business profits, with cash then taken out of the business to be spent on personal mortgage payments then he/she would effectively be wasting money on tax that need not be paid at all.
Of course, commercial mortgages are more expensive than personal mortgages and there are fees involved, but this extra expense can often be more than compensated for by those savings in tax. However, as with all matters of finance, personal circumstances will dictate any savings or otherwise – so ALWAYS seek specialist advice.
If you are a business owner, and the idea of switching money back and fore between your personal and business accounts appeals, but you might prefer a bit more flexibility, then another option is an Offset Mortgage. Check out the pro’s and con’s of what can be a great money saver for business people in next month’s Finance Fitness column.
The FinanceXchange Group was founded almost three years ago with a business base built around the Swindon, Bath, Corsham, Chippenham, Westbury, Trowbridge and Melksham areas. Contact business development manager Nicola Carter on 0870 242 3214, or email info@financeXchange.co.uk or via www.financeXchange.co.uk
