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

            Working...
            X