30 Mar Unlock Business Equity to Reduce Your Residential Mortgage
The short answer is: yes… and no.
If you’re a sole trader or in a partnership, lenders may be open to releasing funds you’ve built up within the business, such as your sole trader capital account or partners’ current accounts, for residential property related purposes. The finance could be used either as a deposit or to repay mortgage borrowing in full.
So, what’s the advantage?
Let’s say you have a personal mortgage of around £300,000. You’ll be making monthly repayments, and the interest you pay isn’t tax deductible.
However, if you effectively move that debt into the business by replacing part of your personal borrowing with a business loan, you are still making repayments, but with one key difference: the interest on a business loan can typically be offset against profits.
This can make the overall structure more tax efficient.
That said, it’s not a straightforward solution for everyone.
Not all lenders will support this type of arrangement, which can limit your options. The structure needs to be clearly explained and justified, and the business must demonstrate that it can comfortably support the borrowing.
Affordability and sustainability will be assessed carefully to ensure the additional debt does not put undue pressure on the business.
Your accountant plays a central role in making this work.
Lenders will usually require confirmation that the transaction is appropriate, correctly reflected in your accounts, and aligned with tax and reporting requirements. In many cases, accountants are comfortable with releasing funds built up in capital or current accounts, but they will need to demonstrate how this has been done.
In summary
The potential benefit is clear: reducing personal mortgage debt and shifting borrowing into the business, where the loan interest may qualify for tax relief. But it requires careful structuring, the right lender, and close coordination with your accountant.
We have recently helped a number of clients release funds built up in their business to reduce or repay personal mortgages, so it is a strategy worth exploring.
If this is something you have been considering, or even if it is the first time it has occurred to you, we would be happy to talk through what could work for you
If you would like to understand what is possible and how it could work in your situation, get in touch. We would be happy to talk it through and help you make sense of your options
Assisting with the set up, purchase and expansion of healthcare businesses is what we do.
Contact Saroma, for an initial conversation to explore your options.
