Should we replace our car loan or mortgage - tax question

Brendan Burgess

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please could someone help. my husband is self employed and i thought i was doing a great thing trying to clear my mortgage and car loans early. i am paying 1,125 euro a month to my mortgage and 1364 euro amonth for our car loan. our accountant tells me if i continue like this i will be paying huge tax. to clear the two loans i would need 38,000 . he thinks i should take out a loan off this amount and repay it over a long term at a low rate therefor i would not need to be lodging such a high amount each month to cover these loans. i really don't want to do this as we are so near to having our mortgage paid back. i do have 35,000 saved and could use this but it took us years to save this and we would never save this again any advice thanks
 
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rainyday

Guest
Re: what is the best thing to do

Hi Sallyanne

In general, paying off loans early will save you on interest payments. I'm not clear why your accountant would seem to be against this.

I am very confused as to why your accountant would advise you to take out one loan to pay off other loans. Unless the new loan is going to be at a much lower interest rate, this makes no sense.

Can you confirm;

- Is the mortgage for your residence or for an investment property?
- Is the car loan a personal loan or a business loan (relating to your husband's business perhaps)
 
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sallyanne

Guest
what is the best thing to do

hi rainyday the mortgage is on our own residence, and the car loan is for our car which is used as a hackney.the accountant is not against us paying off our loans early it is us who do not want to use all our savings.he thinks if we get a loan over 10 years paying back about 600 euro a month we wont be putting our selves under so much pressure paying what we do now which is about2,500amonth.,also we wont have to work as long hours to make this amount .my problem is been so close to paying off these loans now 2years, having to wait another 10 seems a lot. we wont be lodging as much in our bank account if we do it his way and therefore wont be paying as much tax in years to come .
 
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rainyday

Guest
Re: what is the best thing to do

As a general rule, maximising interest payments in order to get tax relief is not a great idea. Sure - you do get some tax relief, but this only covers part of the interest that you have paid out, so you are still out of pocket for the remainder of the interest. If you have opportunities to reduce to overall interest paid, you will be better off.

we wont be lodging as much in our bank account if we do it his way and therefore wont be paying as much tax in years to come .
In general, this is not correct. Your tax liability is not defined by how much you lodge to your account. Your tax liability is defined by your income, less your allowable expenses, multiplied by the relevant tax rate (That is a bit of an over-simplification, but you get the idea).

Your mortgage repayments on your residence are definitely not an allowable expense, so they have no impact on your tax liability. [There is the matter of mortgage interest relief, but this is fairly small, and really isn't worth bringing into the equation].

I'm not sure if your car repayments (or possibly the interest part of your repayments) are considered an allowable expense for a hackney driver. Other posters may be able to confirm or deny this for you.

I'm also a bit confused by the accountant's suggestion to take out a new loan. It makes no financial sense to have 35k on deposit (earning may 1%-2% per annum) while taking out a new loan of 35k at 8%-9% per annum interest (if it is a personal loan) or 3%-4% per annum for a remortgage/secured loan.

If you are struggling to meet your loan repayments, the usual approach would be to renegotiate the repayments on your lowest interest loan (your mortgage). You need to find out why he is suggesting taking out a new loan instead of renegotiating the existing mortgage. The cynic in me is wondering if he will be getting some kind of commission on the new loan. Is he steering you towards any particular provider for thsi loan?
 
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<A HREF=http://pub145.ezboard.com/baskaboutmoney.s

Guest
Re: what is the best thing to do

I would get a new accountant if I was you. Based on what you've posted above your current one doesn't know their arse from their elbow! :\
 
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MugsGame

Guest
Re: what is the best thing to do

Unless what your accountant is trying to say is that your self-employed husband has a large income tax liability coming up which you can't meet because you've already paid the money against your loans?
 
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sallyanne

Guest
re what is the best thing to do

it is not that my husband has a large tax bill , it was our idea to ask the accountant for advice. i think i will try and get another accountants advice before we do anything. it is so good to hear all your views because i am a bit at a loss as to what to do .
 
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The Snork Maiden

Guest
what is the best thing to do

Sallyanne wrote:

"we wont be lodging as much in our bank account if we do it his way and therefore wont be paying as much tax in years to come . "

THis sounds like to me that your accountant is suggesting that you do not declare all your income, i.e. if you dont lodge the cash your husband earns then you wont have any proof of earning that cash and therefore only have to pay tax on amounts lodged to bank.

Very dodgy advise from an accountant and I would re-iterate others suggestions and look elsewhere for advise.

Snork.
 
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Elcato

Guest
Re: what is the best thing to do

I also got the same impression as The Snork Maiden above.
 
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Aphrodite

Guest
Hang on !

To be fair to the Accountant on trial here, I don't think there is sufficient explanation above to really figure out what is going on.

I could understand that the accountant might advise to roll both loans together and obtain one new loan mortgaged on the house at a lower rate. The motor loan is presumably at a higher rate

This would free up some monthly cash flow which they could then channel into a pension or other legitiamate vehicle to reduce taxable profits.

Without the facts I don't think its very professional or sensible to start shouting "kick em out"
 
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XXXAnother PersonXXX

Guest
.

If they have a large sum of money in their business account, maybe it would make sense to keep it there, rather than pay off all the mortgage.

If this money is withdrawn over a period of years (rather than all at once) maybe it will incur less income tax. As soon as this money is taken out of the business, they will be stung for income tax.

Another factor to consider is inflation is gradually wiping off the loan, and they are also getting mortgage interest relief.

I'd suggest you ask your accountant to clarify why he thinks you shouldn't pay off all your mortgage early.
 
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Tommy

Guest
Re: .

As soon as this money is taken out of the business, they will be stung for income tax.
This isn't correct. Self employed people pay tax as income is earned not as it is taken out of the business. There is no suggestion here that a limited company is involved.
 
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daltonr

Guest
Re: .

It sounded like a Ltd company kind of arrangement where they were taking so much out of the company to pay off the loans that they were getting hit with much higher income tax and so were much worse off.

But that only applies if it's a Ltd Company.

Sounds like strange advice otherwise.

-Rd
 
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