The directors trust,the money farm,EFRBS,profit retention,tax planning,corporation tax planning,IHT advice,how to reduce tax,corporate tax reduction,business planning,financial planning,financial advice,finances,UK income tax,tax strategy
The directors trust,the money farm,EFRBS,profit retention,tax planning,corporation tax planning,IHT advice,how to reduce tax,corporate tax reduction,business planning,financial planning,financial advice,finances,UK income tax,tax strategy
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To summerise
Study 4 - 15th May 2008 - Replacing a mortgage with a loan from EFRBS.
In case study 1 we have already indicated that profits can be accessed more efficiently by using EFRBS than by taking a salary, bonus or even dividends. One area of great interest to Directors with mortgages on their own house is to make contributions tax efficiently to an EFRBS and borrow this money to pay off the mortgage in part or in whole.
An example is a typical capital and interest mortgage of £100,000 at an interest rate of 5.5%; this could involve a payment to a third party in the region of £780.00 per month. This requires a Director to earn profits of £1491.40 per month so that after Tax and NIC he will have this net amount available to meet the cost.
If the £100,000 mortgage can be replaced with a loan from the EFRBS on exactly the same terms then the loan from the EFRBS can be serviced with a salary paid to the Director and he may decide to pay only interest which would be £458.33 requiring profits per month of only £868.87.
This looks good on it's own however the best is yet to come. This interest is now paid to his own Trust and the wealth lost to him is not the full amount, it is only the cost of the income tax payable by the Trustee being 40%.
Of the £458.33 paid to the Trust £274.00 is inside the EFRBS, the Tax is only £183.33
The capital outstanding may never be repaid as it can be arranged that any outstanding loan on the member's death will have to be repaid at that time and so reduces the value of the estate for Inheritance Tax purposes.
An example is a typical capital and interest mortgage of £100,000 at an interest rate of 5.5%; this could involve a payment to a third party in the region of £780.00 per month. This requires a Director to earn profits of £1491.40 per month so that after Tax and NIC he will have this net amount available to meet the cost.
If the £100,000 mortgage can be replaced with a loan from the EFRBS on exactly the same terms then the loan from the EFRBS can be serviced with a salary paid to the Director and he may decide to pay only interest which would be £458.33 requiring profits per month of only £868.87.
This looks good on it's own however the best is yet to come. This interest is now paid to his own Trust and the wealth lost to him is not the full amount, it is only the cost of the income tax payable by the Trustee being 40%.
Of the £458.33 paid to the Trust £274.00 is inside the EFRBS, the Tax is only £183.33
The capital outstanding may never be repaid as it can be arranged that any outstanding loan on the member's death will have to be repaid at that time and so reduces the value of the estate for Inheritance Tax purposes.
WHO WOULD NOT WANT A LOAN OF £100,00 TO COST AS LITTLE AS A NET £183.33 PER MONTH?