🟣🟢 The choice behind the choice

Hello, Happy Sunday 👋

Two of my children are buying their first home at the moment. Watching them navigate all the legal stuff, mortgages and interest rates has taken me right back to buying my own first place.

Yes, house prices were far lower then, but interest rates weren’t. Mine hit 13 percent and briefly touched 15 before they settled down again.

It’s funny how those early money decisions and experiences stay with you. For most people their first mortgage feels like a huge step.

And it might be why overpaying the mortgage is always one of those questions that comes up regularly. Especially now interest rates are higher than they were.

But for business owners it’s not such a straightforward decision.

If you’ve got extra money you could pull out of the business… where should it actually go? Pension? ISA? Mortgage?

Business owners don’t have “spare income” in the same way employees do.

Employees tend to work with whatever lands in their bank account after tax. Business owners are different.

You control what comes out of the company. Salary, dividends, company pension contributions. It’s not about “leftover cash”, it’s about choosing the most effective extraction route.

So before you even think about pensions or mortgages, the real first question is:

How much do I want to move from my business into my personal world this year, and what’s the most tax-efficient way to do that?

Once you’ve answered that, then the mortgage vs ISA vs pension question becomes relevant.

Company pensions are usually the most efficient extraction route.

This is the part business owners often underestimate.

Company pension contributions are still one of the most tax-efficient ways to get money out of your business.

They reduce corporation tax. You don’t pay NI. You don’t pay income or dividend tax. And the money lands straight into your long-term wealth pot.

Nothing else extracts profit quite as cleanly.

Even with the Budget changes, pensions usually come out ahead when you’re looking at long-term growth for your future self and your family.

ISAs give you flexibility your business can’t.

Once you’ve handled the pension side, the next question is what else can you do that is tax efficient.

ISAs give you that. Tax-free growth. Tax-free withdrawals. No rules about when you can or can’t take income.

They’re ideal if you want choices in the next five to ten years. Early retirement. Renovating a home. Helping children. Or simply giving yourself breathing space.

They balance the long-term focus of the pension and give you options if life shifts.

Mortgage overpayments sit in a category of their own.

This is where emotion comes in.

Mortgage overpayments don’t give you tax relief and they don’t always beat investment returns. But they do give you something the others don’t. Certainty. And an immediate feeling of progress.

Some people just want to reduce their mortgage to feel lighter, more in control.

The challenge is that emotional wins don’t always line up with long-term financial wins. So the skill is balancing the two. You don’t have to ignore your feelings or ignore the maths. Most people end up with a mix. 

So what’s the right order for business owners?

Here’s the framework I use in practice:

Decide your remuneration plan 

How much should you take from the business this year. Intentionally, not as leftovers.

Use company pension contributions for long-term growth 

This is usually the most effective strategy.

Use ISAs for flexibility 

Your medium-term plans, early retirement, family support, or simply having options.

Use mortgage overpayments if it’ll feel good 

A guaranteed return and a feeling of progress that matters more than people admit.

If you’re not sure what your own mix should be…

I’m happy to walk through it with you. Just ping me a reply and we can work out what makes sense for your situation.

😎 THAT’S IT FOLKS

If you have any questions at all, do ping me a reply or get in touch 👇

Hilary 😉

P.S. WHAT ELSE? 👉 Book a call with me here (or if you prefer, call one of my team on 0117 9629696) and I’ll help you make sense of what you’ve got and what it could be doing for you.

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