Am I being thick?? Mortgage

[PeriodBlues]

We are trying to sort a mortgage.

H is self employed in a partnership.

The deposit (we had hoped) was going to come from a mixture of savings and the business (smallish amount, other partner is absolutely fine with it as they have just taken a similar amount for something else).

The broker I have spoken to has said that no lender will accept a deposit coming from a business.

I don't really get why. It's not a limited company so technically it's his (and his partners) money. He is taxed as if that is money he has earnt. Could he not just take it out as a salary tomorrow if he wanted to?

Is there anything stopping us from just putting it into our savings a few months before rather than having it come directly from the business account?

I'm just confused as to why we don't seem to be able to utilise money that is technically DHs. He kept it in the account whilst he was building up the business, he could have paid himself more over the years but hasn't simply because he didn't need to.

I don't know, but my mum gave me £7k towards our deposit and we had to have a signed letter to say it was a non repayable gift. And some money laundering checks were made iirc. Could it be to do with that?

I've no idea, they weren't very helpful to be honest.

We'd be happy to sign something to say it was non repayable as would the other partner in the business. It's just annoying because it's his money still so I don't get why we can't use it.

Do both partners have to sign cheques? It seems a very precarious way to save if the partner could take money out without your partner's signature.

Either way it would be much better for him to put it into his own account.

I expect it’s to do with whether it’s repayable or not - they don’t want him to owe that money elsewhere as it will make it more likely you’ll have difficulty paying the mortgage. If he took it as salary that would be different, whereas if he’s ‘borrowing’ it from the business that’s a debt he will need to service. Also, as far as they’re concerned he’s dipping into the very pot he’ll be using to pay them, so it’s a double concern, really.

Also try a different independent mortgage broker - who may give different advice.

The money from the business is either a loan or it's partners taxable income. If it's his income, then once it's in his account it's no longer money from a business, so no issue.

I think the broker is just saying it can't be a loan, which is fair enough.

I’d speak to a different broker, it is possible with some lenders, some of which will need further info such as a letter from the accountant to state that it won’t adversely affect the business

H will have to take the money as a dividend and pay income tax on anything above the first £2000. Then it's earnings and good for a deposit, I think.

Take the money out first so it doesn't come directly from the business.

All money withdrawn from the business has to:

1. be subject to some form of taxation

Or

2. be used to purchase something the business owns

Or

3. be a loan from the business to the individual which is repayable and subject to interest

Presumably you don't want the business to own the property so make the money your own first.

I doubt the mortgage advisor knew enough about it to explain it to you.

Think it would depend on the amount of money and how long it was in your account before using it as you may have to provide 6 months bank statements and any “unusual” amounts would require further statements ie business bank statements.

(As an aside, why is he in a partnership? Is the most risky form of business ownership as you don’t really have any personal protection from business activities eg if his partner disappears with all of the savings then your DH will be personally liable for the business debts. Setting up a limited company would only cost a few hundred pounds and would mean that the company is a separate legal entity so it’s the business that would be liable for its debts etc so creditors can’t come after your DH personally).

Okay I think the best way forward would be to just put the money from the business into our savings account then. As a sort of 'topped up' salary one month.

It's just annoying because he could have been paying himself a lot more than he has been doing every month but he thought he was doing the best thing keeping it in the business account rather than his own.

Our accountant explained it to us as the net profit of the business is DHs (and his partners) money, not like a limited company where you have to set a salary etc... The money is theirs to take out / do with what they wish that's why they are taxed on their self assessment as if that's what they've earnt for the year.

@NearlyGranny they're a partnership not a limited company so cannot take dividends.

If he pays it to himself as salary he will need to Pay Tax and NI on it (assuming its over £8632)

As an aside, why is he in a partnership? Is the most risky form of business ownership

It's something we are looking into changing at some point in the near future but when he was starting up, it was the best option for us.

If he pays it to himself as salary he will need to Pay Tax and NI on it

He pays tax and NI on it whether it's sat in the business account or in our personal account because it's his money (50% of anyway).

For example, he only pays himself £1,000 a month. But the business made a net profit of around 90k so him and his partner were taxed and NI as if they'd earnt 45k that year.

@PeriodBlues I know, I totally contradicted myself ref the ltd co then the PAYE and NI, it's been a long week is my only excuse, and I do this for a living

QforCucumber

I guess we'll just have to up his salary for a few months and put the extra into our savings.

I think your broker could have explained this quite simply. The reason the bank won’t accept the money from a business is because the business might have a claim on the property. The bank always has to have first charge over the property. They would then expect the business to take a second charge on the property to cover what was lent. That would mean that in the event of the property being sold the bank would be repaid first then the business that lent the money.

No bank would trust a verbal agreement.

Oh duh of course! Totally didn’t consider that. Makes perfect sense and yeah, I really don’t understand why the broker could t explain that. Clearly not a helpful person, as you’ve said. Best go to another one, I think.