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  • Neil Morris

Can’t always have your cake and eat it!

Nobody likes paying tax and by the same token, if you can reduce the amount of tax you can pay by legitimate means that should be considered. However, at times it is worth taking a step back and considering the consequences on other aspects of your finances before committing to a course of action.

Take the case of Mr P, he wanted to purchase a new van for his business and under the advice of his accountant he used the rules relating to Capital allowances to significantly reduce the level of profits he reported to HMRC and thereby his tax bill.

Good news?, until he came to review his mortgage a few months later that is. With his current fixed rate expiring he approached us to look at more attractive options in the market rather than what was being offered by his existing lender. Based on the net profit figures he provided us with, we established that we could save him a substantial amount on his monthly mortgage payments.

However, when we received the detail of the actual figures submitted to HMRC for tax purposes, that created an issue as the lenders rely on this particular information not the clients trading accounts, on which to base their affordability decision.

Unfortunately, the numbers no longer stacked up and it was the same response from all the lenders we spoke to, the mortgage isn’t affordable.Therefore Mr P’s only option was to switch to a new product with his existing lender, at a higher rate than we could have achieved elsewhere, erasing any benefits from the tax saving he had made.Whilst he is not greatly worse off, he is not as better off as he had hoped he might be.

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