Obviously, it is v tax efficient to pay a small salary and take the balance of company profits as dividends.
However, this comes a bit unstuck for earnings multiples for getting a mortgage.
How do others get round this? Do lenders take dividends into account? Do you increase the slaary to an appropriate level for, say, a year?
Donald Donnelly
Replies (2)
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Not a problem
Most lenders are pretty clued up now on what steps director/shareholders take to mitigate tax and so consider dividends, company profits and other relevant variables. I would worry about wanting to do business with those that aren't.
Even better ....
I know of a lender who agreed to acknowledge the fact that dividends, subject to lower tax/NI burdens, were, in the taxpayer's hands, equivalent to a correspondingly higher salary. They thus gave a multiple based on the post-tax dividend grossed up at PAYE/NI rates. Even though an OMB, they were prepared to ignore the tax cost to the company in the calculations.