Complicating simplicity or simplifying complexity – when tax affairs get in the way of obtaining a mortgage


We have all read about the high-profile comedian, or famous MP, or household name, BBC anchor newsreader, who have been cited as having questionable or amoral tax affairs.

But it’s also the next-door neighbour who may be caught out unwittingly, by clever schemes, hatched to save money.

Too many overzealous accountants and tax advisers are hampering the chances of their clients getting a mortgage. Accountants and tax experts, with the sole objective of minimising the amount owed in tax, are offering advice which is likely to be to the detriment of a client getting a mortgage. Take-up of the complex tax-saving schemes mean the professional self-employed, such as surveyors and architects, are having a hard time proving their income, a prerequisite to getting a mortgage in most circumstances.

For example, a client with a healthy income of £300k may be finding it a challenge to get a mortgage because her income is paid via a directors’ loan account and in the form of dividends. The actual PAYE income is a tiny fraction of this, yet this is what the lender will use to assess if a client is mortgageable.

We also see clients who have set up nominee companies to hold their assets, or have bearer shares – where whoever physically holds the certificate, owns the shares. Banks don’t see this as much security at all and this has proven problematic for clients.

Increasingly, we are seeing clients with more and more elaborate tax structures, where they are distancing themselves from their assets, to the point where they can’t actually demonstrate their income anymore, or the assets they own. This is a huge problem when they are trying to obtain a mortgage.

If you ‘hide’ your assets in this way, then you can’t demonstrate your income, unless the bank can track back to your ownership of that asset. The bank then needs guarantees from the asset to support any lending, whereas normally clients would have to provide a personal guarantee.

Saving tax is all very well and legitimate, but there has to be a trade-off between this and being able to demonstrate income, for those who want a mortgage. It goes to show it is worth taking a balanced view of your financial affairs. Even if you can’t see a need for a mortgage now, everyone’s circumstances can change and it may well be more expensive to simplify those complex financial arrangements, which once looked as though they were saving so much money and trouble.

Contact Anderson Harris for further advice and to see whether we can help.

Jonathan Harris
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Jonathan Harris