Effective Bonus Use - Property/Ltd Company?

[BusterBloodvessel]

Hi Everyone,

First of all this is just at an initial thoughts stage, it's something I would take offline professional advice about should it go further! However open to peoples initial thoughts as perhaps it's a non-starter, also I am discussing some ideas for the future with my partner so would like an idea of possibilities.

I have a new job role which is heavily commission based on sales & also product development, paid monthly based on previous months' sales. Without wishing to disclose too much on a public forum, I have taken over some customers that means even if I just maintain their existing sales, I will get a 5 figure sum (pre tax) each year. It is quite feasible that within 12 months I should be looking at more than double this in annual pre-tax bonuses, in fact if I am not getting to a level where I'm doing that both myself and my boss will be disappointed! It could actually be 4 or 5 x that amount, it really does just depend on the success of some new customers and products.

I am in the very, very fortunate position where I can live "OK" on my base salary - perhaps not flamboyantly and holidaying in the maldives every year, but that isn't my style anyway! I don't need the money earnt as commission, so my number one aim is that it will go towards a significant house deposit in 2 - 4 years time - it is about time I got on the housing ladder and would like to get as big a deposit as possible with a minimal mortgage. Should I continue in the job role and earnign such amounts I'd like to consider a second and third property. But - one step at a time!

Currently the commission is taken through PAYE and attracts 40% tax. What I am wondering is if there is a more efficient way for me to take and use the commission in the short term. My thought was to set up a Ltd company, and invoice my employer monthly for my commission payments, almost as a consultancy fee or similar (they do this already for some agents). Should I leave the money in the Ltd Co, it will only be subject to 19% CT rather than 40% IT. I could then look at two things;

- Buying property through the Ltd Co. But I assume at some point down the line whenever I end up selling, CGT would come into play and would I get at a later point? But even if so... lets say for the sake of round figures I earn £100k bonus in 3-4 years, is it better to have £81k as a bigger deposit and save on the mortgage than it is to have £60k personally towards the mortgage?
- Extracting the money as tax-efficiently as possible - my partner is a very low earner so could potentially be "paid" by the business up the 40% threshold at only 20%, plus whatever dividends I could take?

I think the first option is the one that on the face of it seems to make the most sense to me. Option 2 would seem a lot of effort for very little saving I think. BUT.... maybe this just doesn't work as an idea full stop? I assume the Govt have everything stitched up to get the tax out of you one way or the other - it just depends which way they go about it!

People have mentioned dumping it all into a pension but I really want to use this as a foot on the property ladder.

This really isn't something I'm clued up about at all. I just feel that I am in a very fortunate position to earn a good "chunk" over the next couple of years and I want to make sure it gets put towards the right thing as efficiently as possible, as a chance like this might not come along again. I would appreciate anyones thoughts, either on the above or on any other completely different ideas.

TIA

 

[NicoJ]

Hi Everyone,

First of all this is just at an initial thoughts stage, it's something I would take offline professional advice about should it go further! However open to peoples initial thoughts as perhaps it's a non-starter, also I am discussing some ideas for the future with my partner so would like an idea of possibilities.

I have a new job role which is heavily commission based on sales & also product development, paid monthly based on previous months' sales. Without wishing to disclose too much on a public forum, I have taken over some customers that means even if I just maintain their existing sales, I will get a 5 figure sum (pre tax) each year. It is quite feasible that within 12 months I should be looking at more than double this in annual pre-tax bonuses, in fact if I am not getting to a level where I'm doing that both myself and my boss will be disappointed! It could actually be 4 or 5 x that amount, it really does just depend on the success of some new customers and products.

I am in the very, very fortunate position where I can live "OK" on my base salary - perhaps not flamboyantly and holidaying in the maldives every year, but that isn't my style anyway! I don't need the money earnt as commission, so my number one aim is that it will go towards a significant house deposit in 2 - 4 years time - it is about time I got on the housing ladder and would like to get as big a deposit as possible with a minimal mortgage. Should I continue in the job role and earnign such amounts I'd like to consider a second and third property. But - one step at a time!

Currently the commission is taken through PAYE and attracts 40% tax. What I am wondering is if there is a more efficient way for me to take and use the commission in the short term. My thought was to set up a Ltd company, and invoice my employer monthly for my commission payments, almost as a consultancy fee or similar (they do this already for some agents). Should I leave the money in the Ltd Co, it will only be subject to 19% CT rather than 40% IT. I could then look at two things;

- Buying property through the Ltd Co. But I assume at some point down the line whenever I end up selling, CGT would come into play and would I get at a later point? But even if so... lets say for the sake of round figures I earn £100k bonus in 3-4 years, is it better to have £81k as a bigger deposit and save on the mortgage than it is to have £60k personally towards the mortgage?
- Extracting the money as tax-efficiently as possible - my partner is a very low earner so could potentially be "paid" by the business up the 40% threshold at only 20%, plus whatever dividends I could take?

I think the first option is the one that on the face of it seems to make the most sense to me. Option 2 would seem a lot of effort for very little saving I think. BUT.... maybe this just doesn't work as an idea full stop? I assume the Govt have everything stitched up to get the tax out of you one way or the other - it just depends which way they go about it!

People have mentioned dumping it all into a pension but I really want to use this as a foot on the property ladder.

This really isn't something I'm clued up about at all. I just feel that I am in a very fortunate position to earn a good "chunk" over the next couple of years and I want to make sure it gets put towards the right thing as efficiently as possible, as a chance like this might not come along again. I would appreciate anyones thoughts, either on the above or on any other completely different ideas.

TIA

This is employment income- earned by virtue of your employment. So, even if the ltd company idea did get passed by your employer it would be subject to IR35. So, either your employer would take the tax and NI from your payments anyway or you would have to calculate a deemed payment on the income yourself.

You would actually be worse off!

 

[NicoJ]

You could look at salary sacrificing the money into a SIPP which can hold property. You would need a financial advisor to look through your circumstances though to give you the best advice.

 

[BusterBloodvessel]

This is employment income- earned by virtue of your employment. So, even if the ltd company idea did get passed by your employer it would be subject to IR35. So, either your employer would take the tax and NI from your payments anyway or you would have to calculate a deemed payment on the income yourself.

You would actually be worse off!

It sounds then, as they say..... that that is the end of that!

I used to work with someone who I know 100% for a fact was employed by our company but also took a "Consultancy Fee" on certain customers that he introduced, so I assumed was possible. Maybe different circumstances, or dodgier dealings going on than I was privy to! ?

 

[BusterBloodvessel]

You could look at salary sacrificing the money into a SIPP which can hold property. You would need a financial advisor to look through your circumstances though to give you the best advice.

Thanks Nico Something else to look into.

 

[Newchodge]

It sounds then, as they say..... that that is the end of that!

I used to work with someone who I know 100% for a fact was employed by our company but also took a "Consultancy Fee" on certain customers that he introduced, so I assumed was possible. Maybe different circumstances, or dodgier dealings going on than I was privy to! ?

Just because someone else breaks the law, doesn't make it right!

 

[MBE2017]

Just to add to the above, when you come to buy a house, you will have ALL monies run through AML, as the law requires. Little point in saving a deposit you then find is constantly queried.

I just gifted my daughter some money for a deposit, and the hoops I have had to jump through is quite depressing at times, and every penny was legit. Written statements, bank statements all provided to solicitors etc from various accounts all back to the origin of the actual monies, thankfully I am very organised paperwork wise.

 

[BusterBloodvessel]

Just to add to the above, when you come to buy a house, you will have ALL monies run through AML, as the law requires. Little point in saving a deposit you then find is constantly queried.

I just gifted my daughter some money for a deposit, and the hoops I have had to jump through is quite depressing at times, and every penny was legit. Written statements, bank statements all provided to solicitors etc from various accounts all back to the origin of the actual monies, thankfully I am very organised paperwork wise.

I remember my (now ex) girlfriends sister having no end of trouble buying a house with her partner several years ago. Ex-gf's sister was gifted some money off Dad, not only did they want to see his bank statements they wanted his Ltd companys statements to check the legitimacy of that.

But to make things worse - her girlfriend/fiance had inherited some money when her mother died at young age from cancer (fiance was only about 15 or 16 when mother died I think). They had her trawling through her dead mothers bank accounts and trying to contact her old bank to get verification of where the money had come from before she passed away, which was some few years earlier - not only was it from years ago, but said fiance had never dealt with it at the time because of her age, it had all been done by family. So suddenly she has to start delving into her dead mothers finances. It was horrendous.