Retained profits and home moves | Broadbench Mortgages

Planning a home move can prompt a familiar concern for company directors: will the salary and dividends you draw show enough income for a mortgage? Before taking extra money from the business, find out how a lender might assess your circumstances. Some lenders may consider your share of company profits, while others focus on salary and dividends or, for eligible contractors, contract income. Those approaches have different conditions.[1] [2]

The useful first step is a conversation with your mortgage adviser and accountant, not an automatic dividend payment.

Salary and dividends are not the only possible assessment

A lender looking at your personal tax calculations may see a different income picture from one considering company accounts. Accord, for example, publishes a salary and dividends approach alongside an alternative using salary plus an eligible director’s share of net profit after corporation tax. Ownership, trading history and sustainability requirements apply.[1]

Halifax states that its standard director assessment uses salary and dividends drawn. It also allows certain applications needing company net profit to be referred for individual underwriting, subject to conditions. This illustrates why a general statement that a lender either accepts or ignores profits can miss important detail.[2]

For some limited company contractors, an assessment using the current day rate may be another route. Contract history and sustainability requirements still matter.[1]

Ask your Broadbench adviser which income method could fit your position and what evidence supports it. Do not add accumulated retained reserves to annual income yourself, or count the same profits again as dividends. The lender’s calculation determines which figures are usable.[1]

Income assessment is separate from deposit funding

A limited company is legally separate from its owners. Money held by the company is not automatically your personal cash deposit, even if a lender considers company profit when assessing income.[3]

Share ownership does not create an unrestricted right to withdraw the company’s money. Share classes can carry different rights, and dividends must follow the relevant rules.[4] [5]

Keep two questions separate: what income might support the mortgage, and what money will actually fund the purchase? Prepare a deposit breakdown showing existing personal savings, expected sale proceeds and any proposed company extraction separately. MoneyHelper identifies proof of deposit as part of mortgage preparation.[6]

If some funding depends on a future dividend, label it as proposed rather than already available. Ask your adviser what evidence the lender will need, and ask your accountant whether the withdrawal is appropriate before relying on it.

Speak to your accountant before withdrawing money

Your company cannot pay more in dividends than its available profits from the current and previous financial years. Declaring a dividend also requires records, including meeting minutes and dividend vouchers.[5]

Ask your accountant to distinguish the retained profit figure in the accounts from cash available after tax liabilities, business commitments and working capital needs. Request an explanation of what an extraction would mean for the company and your personal tax position. A lender recognising profit for affordability does not settle those questions.[2] [5]

Confirm your share rights and whether other shareholders must be considered. If you propose a dividend, ask which records are needed and how the timing fits your accounts and purchase plans.

Do not assume an informal transfer is simply an early dividend. A withdrawal that is not salary or a dividend can fall within directors’ loan rules, with separate recording and tax implications. Obtain accountant advice before making the transfer.[5]

Prepare figures that explain why profits were retained

Give your Broadbench mortgage adviser a clear account of how the business supports your household. Explain whether profits were retained for future investment, uneven cash flow or ordinary operating costs.

Ask your accountant to identify the relevant accounting periods, salary, dividends, net profit and your ownership. Explain any material changes rather than assuming an increased balance means increased sustainable earnings. Your adviser can confirm which accounts, tax calculations and bank statements are needed. Requirements vary by lender and assessment method.[1] [6]

For a contractor assessment, have your current contract and recent contracting history ready. Ask which dates and terms the lender needs to verify.[1]

Also prepare a realistic household budget. Company profitability is only part of affordability: lenders consider regular spending, existing debts and credit history too.[6]

Agree the mortgage approach before changing your drawings

Ask Broadbench to review how you earn, your intended purchase budget and the proposed deposit source before changing your drawings solely for a mortgage application. We provide specialist mortgage advice for directors and contractors and home mover mortgage advice.[7] [8]

Arrange a conversation with a Broadbench mortgage adviser and involve your accountant in any extraction decision. The aim is an informed plan, not a promise of approval.

General information only, not personal mortgage, tax or legal advice. Eligibility, lending criteria and mortgage terms vary and can change. Tax treatment depends on individual circumstances and can change. Ask Broadbench to explain applicable advice fees and mortgage costs before proceeding.

Your home may be repossessed if you do not keep up repayments on your mortgage.