Drawing a salary from BTL business

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Drawing a salary from BTL business

    My wife & myself currently own three BTL properties.

    We are planning to expand further and hopefully own a total of about ten properties eventually.

    The BTL business is registered with the I.R. for tax purposes in the wifes name (basic rate tax payer)

    I would like to start to pay my wife a salary from the business for the work she does (bookkeeping/secreterial work etc)

    Do I have to physically pay her from our business bank account or can her 'salary' be left in our business account?

    For tax return purposes can we claim she is paid a salary if the salary never actually leaves our account...?

    Any advice would be appreciated.

    Regards

    JDO

    #2
    Subject to what Steve Simms or any one else more qualified to answer this one than me may say; When you file your wife's tax return, you will be required to pay tax on the entire profits made by the business (i.e rental income less allowable expenses) as this is her income. I assume she is paying NIC at class 2 rates (self employed). Thus she can draw what she likes from the business account - just make sure you leave enough in there to pay the tax bill when it arrives! If you really want to pay her a fixed salary then you may well be in for making her an employee, class 1 NIC, PAYE, the associated returns and so on. Professional advice is advisable or you may get a nasty, expensive letter from the tax man.

    P.P.
    Any information given in this post is based on my personal experience as a landlord, what I have learned from this and other boards and elsewhere. It is not to be relied on. Definitive advice is only available from a Solicitor or other appropriately qualified person.

    Comment


      #3
      Sounds like you need some professional advice.

      Basically there are 3 types of entities which are recognised for tax purposes, sole trader, partnership and ltd company.

      You say the 'business' is registered in your wife's name which suggests that she is a sole trader, so what P_Picher says applies. However, you also say that both of you own the properties. As you can't just elect to have joint income paid to a lower rate taxpayer, it may be that the revenue would seek to apportion income to you and to your wife, so her half is taxed at her marginal rate and your half at yours. If you want to say that you and your wife are in business as a partnership, there may be implications from a mortgage lender's point of view.

      If a limited company, yes you can pay your wife a salary, but it would have to be an actual payment from the business to her bank account, with the necessary Revenue forms filled in monthly, etc, and income tax, employee and employers NIC paid across to them.

      As I say, I don't know enough about the details to give advice, and you probably need to have a session with a professional for them to ask the right questions. Its best to get it right from he beginning as a wrong assumption could have big consequences.

      Comment


        #4
        P.Pilcher/Curmudgeon - thank you both for your comments, they have been very helpful.

        Regards

        JDO

        Comment


          #5
          The IR are unlikely to let you draw payroll from an investment business. Stated tax cases that have been through the system support their argument.

          If you traded shares, you wouldn't be able to pay your wife a salary as the income is derived from investments - the IR considers your property business on the same basis as personal share trading.
          Steve Sims

          Yardleystar Accountancy
          0870 242 1047

          Email: ssims@yardleystar.co.uk

          Comment


            #6
            You are in effect in a lettings business partnership with your wife. Wages can only be paid to employees and not to owners of businesses.

            All lettings business profit is effectively taxable income of the partners and apportioned between the partners according to the shares in which they own the property.

            If you wish to apportion more profit to your wife, the only way would be to own the properties jointly as tenants in common and change the ownership shares between the two of you so that your wife owns a higher share.

            These shares could be changed at a later date to suit changed circumstances in the future; however, frequent changes is not to be recommended and will inevitably attract enquiries from the Inland Revenue.

            Finally, lettings business does not require registration as self-employed or partnership and does not require payment of NIC2 contributions.
            Private advice is available for a fee by sending a private message.

            Comment

            Latest Activity

            Collapse

            • Need CGT help or do i ned an accountant
              by Sara2
              Mother died in 2007 left house to me and my 2 sibs it was family home and i lived in it until 1985 when i had my own house. My brother also lived in house at point mum died and he remained there until 2010 when not being able to sell the property i purchased whole of property by buying brother and...
              13-06-2021, 11:53 AM
            • Reply to Need CGT help or do i ned an accountant
              by Sara2
              I fail to see how i can notify hmrc that rental was terminated in 2019 whilt non paying tenant remained in the property until May 21
              17-06-2021, 19:29 PM
            • Reply to Need CGT help or do i ned an accountant
              by Gordon999
              If you do not inform the Tax Office and just move back to live in the BTL property, the "rental business with tax losses" , can remain in existence for three years.

              https://www.property-tax-portal.co.u...business.shtml

              But the property owner can notify the Tax Office...
              17-06-2021, 12:28 PM
            • Reply to IHT, CGT and Income tax avoidance
              by jpkeates
              But there's £750,000 mortgage lending to pay off when you die, so the "giving away" is more like a loan.

              I'm not expecting anyone to pay 1p more tax than they should, but I find it's sometimes interesting to replace "the taxman" and "HMRC" with "we/us"...
              17-06-2021, 09:38 AM
            • IHT, CGT and Income tax avoidance
              by clairol
              So I’ve been listening to some property investment seminars where the suggestion is to buy ‘good’ properties, regularly put the rent up and never sell them.
              The advice is to keep them forever so you do not pay CGT; re-finance regularly and either enjoy the money or re-invest it; pay minimal...
              16-06-2021, 16:40 PM
            • Reply to IHT, CGT and Income tax avoidance
              by Section20z
              Yes but people who do maths in your example could give the £750,000 away before death so beneficiaries get £400,000 extra and tax man loses ....
              17-06-2021, 09:01 AM
            • Reply to IHT, CGT and Income tax avoidance
              by jpkeates
              It might be popular, but only to people who can't do maths.

              It's only a tax effective policy in the same way that having no money when you die means you don't pay that much inheritance tax.

              Ignoring the reliefs and personal thresholds for simplicity, if you die with a portfolio...
              17-06-2021, 08:10 AM
            • Reply to Need CGT help or do i ned an accountant
              by jpkeates
              Surely the business continued (the rent was still owed, even if not paid) and the business continued until the disposal of the property (assuming it was the only property in the business).

              Your interpretation is more appealing if it can be justified....
              17-06-2021, 07:54 AM
            • Reply to Need CGT help or do i ned an accountant
              by jpkeates
              Whoever gave you that advice doesn't understand how CGT works.
              You straight line the increase between purchase and disposal and you can deduct any time the property was your main residence (plus some additional months) as that period's gain is tax free.

              Any valuation when you start...
              17-06-2021, 07:52 AM
            • Reply to IHT, CGT and Income tax avoidance
              by Section20z
              I think the point being made is that landlords refinance to use the equity without selling and thus avoid CGT but it's perfectly legal and not necessarily depriving the state coffers as they might not otherwise sell .
              Its long been touted as a good way for building a portfolio and frequently promoted...
              17-06-2021, 07:47 AM
            Working...
            X