When Income and Tax Planning Clash with Mortgage Affordability

If you’re a company director or small business owner going through a major life event—like a divorce—you may already have enough on your plate without your mortgage options adding to the stress.

In this case study, we look at how one of our accountant partners referred a business owner client who was facing exactly that situation. She needed to buy a new home for herself and her children, but her tax-efficient income strategy was holding her back with lenders.

Thankfully, the right advice made all the difference.

The Client’s Situation

The client, a limited company director, was separating from her spouse and would be the primary carer for their three children. She paid herself around £50,000 annually and retained additional profits within the business—a sensible strategy that gave her both tax efficiency and a financial buffer for business continuity.

Her accountant had advised her to keep dividends low for tax planning reasons, which also supported the business’s long-term resilience.

However, when she tried to get a mortgage to buy a new home in a good school catchment area, her existing lender would only offer around £200,000. She needed at least £250,000.

The Dilemma: Increase Income or Find Another Way?

To borrow more, her adviser initially suggested paying herself a higher dividend. While technically possible, this would come with a higher tax bill—on income she didn’t actually need. It might also affect benefits such as child benefit and would reduce the business’s cash reserves.

This is a common challenge for business owners. While many lenders only consider salary and dividends, that doesn’t always reflect the true financial picture.

The Solution: The Right Lender and Strategic Advice

We reviewed the case in full and identified a lender who was able to assess the client’s affordability more holistically.

Rather than insisting on inflated dividends, the lender was comfortable using the client’s current income alongside her business’s retained profit history. We secured a mortgage agreement in principle for the full £250,000 she needed—at a rate very similar to what she was currently paying.

There was an early repayment charge from her existing lender, but this was shared with her ex-partner as part of the financial settlement. Even with the charge factored in, the overall cost was still lower than the potential tax bill from drawing unnecessary dividends.

The Result

• Full mortgage agreed based on her existing income
• Tax-efficient structure preserved
• No need to change business strategy or drain reserves
• A smooth experience supported by joined-up advice between us and her accountant

Final Thoughts

This case highlights the importance of collaborative, specialist advice—particularly when your income doesn’t fit a “standard” model.

Many company directors feel pressured to change how they’re paid just to fit into a lender’s box. But with the right adviser and the right lender, that may not be necessary.

If you’re a business owner—or work with business owner clients—it’s always worth speaking to someone who understands both the mortgage market and the nuances of running a company.

Information correct as of June 2025.

All mortgages are assessed on each person’s individual circumstances and are subject to underwriting, survey and credit checks.