Setup letting agency to manage my properties

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

    Setup letting agency to manage my properties

    I've been reading that setting up a own ltd lettings agency to manage own property is quite a popular choice.
    One thing I didn't get is, let's assume that this ltd charges the owner (same person) a management fee, and after expenses etc, the company's net profits are 5k (after tax). The director then can get this 5k as year's dividend.
    The receiver of the dividend (which again, is the property owner) should then declare this profit in his self assessment (which naturally be on top of the properties earnings). Will this affect his total taxable income?
    Example:
    Landlord gets 50k from his day job and pays 8,696.40 for the year.
    If he gets 5k as a director's dividend from the company, will he pay additional tax, more than 8,696.40, as his total income is 55k?

    Also, do you know if the above strategy is effective?

    #2
    How many properties do you have?



    Freedom at the point of zero............

    Comment


      #3
      Two properties.

      Comment


        #4
        HMRC are well aware of this "fiddle". (You would, btw, need to register the "letting agent" {aye, right...} with a redress scheme). Expect HMRC to declare your cunning plan unlawful & for you to get a large bill.

        Some (e.g. .. my dad...) consider/considered paying the correct tax their patriotic duty.
        I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

        Comment


          #5
          Why is this a "fiddle" and unlawful ?

          Comment


            #6
            Many would have expected someone asking that to be clever.....
            I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

            Comment


              #7
              I mean "technically" it's allowed. Morally, is a different story. In the same fashion as if I move my property to my wife because I'm a high tax payer and she's not. Or rather, move it to my kids who don't pay tax at all and save everything. It's the same "fiddle", no?

              Comment


                #8
                You need to discuss this with a decent accountant, but in principle the Ltd company is a different legal entity in it's own right.
                The fact that the property owner holds 100% of the shares in a Ltd company that is trading as a letting agency, is not a problem.
                The Ltd company can charge any price it wants, for services, if the property owner is willing to pay it.
                I know an estate agency which has 4 directors, and one of those rents out houses using the agency she owns 25% of as her agent.
                Ultimately the HMRC could look at it more closely if the fees are not within the normal bands.
                I'm sure that the letting agency will follow all the rules of being a letting agency, and be registered with the RLA and have the correct insurances and paperwork ?
                this link might help you
                https://www.uktaxcalculators.co.uk/d...-vs-salary.php

                Comment


                  #9
                  With only 2 properties you may well end up worse overall.

                  http://www.thisismoney.co.uk/money/b...y-buy-let.html

                  Comment


                    #10
                    Originally posted by Skag View Post
                    I mean "technically" it's allowed. Morally, is a different story. In the same fashion as if I move my property to my wife because I'm a high tax payer and she's not. Or rather, move it to my kids who don't pay tax at all and save everything. It's the same "fiddle", no?
                    No, it's the difference between tax evasion (not legal) and tac avoidance (legal).

                    The company set up to manage your properties is probably a sham created to evade tax.
                    The people doing the work are the same, the work is the same, the "agent" doesn't work for anyone else, the entire structure is created to reduce the tax paid by you.
                    HMRC have general powers to investigate such evasion schemes - but they may not even notice.

                    If the "business" charges a normal market rate and runs normally, HMRC might take the view that the agent is simply not good at attracting other business and is a real business.

                    Dividends are taxed differently than income (there's currently a £5k allowance for dividends that will fall to £2k soon).

                    There are costs in setting up a business and making the reports necessary to keep it running which might offset any tax advantage.


                    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                    Comment


                      #11
                      Im thinking of buying another property inside a Ltd company, rather than setting up as an estate agent can I get the company to charge me for a going rate for managing the other properties owned in my own name...

                      I know doing the above is seen as creating a Ltd company purely to avoid tax and can be deemed as tax evasion rather than avoidance. However would it make a difference if that company owned a property that was rented out so is a legitimate business?

                      Comment


                        #12
                        Catdog1121,

                        If total of your job income + rental income comes out below £45K, your tax rate remains at 20% . If you are in the 40% tax bracket, then you may consider using a Ltd Company .

                        If your 2 properties are managed by your Ltd company,you would be paying about 15% of the gross rental income to your Ltd company for managing your rental business.

                        Your Ltd Company will be reporting rental income from one BTL property owned by company plus management fee from your 2 properties.
                        The Ltd company pays corporation tax ( 20% or 19%) on all of the trading profit and and can pay out £5K in dividend without tax. But any higher amount of dividend paid is taxed at 7.5% or 32.5%


                        https://www.freeagent.com/rates/dividend-tax/

                        Comment


                          #13
                          Yeah thats what I figured, as im a 40% tax payer and will be creating a Ltd company anyway it makes sense to put some of the money into the company to be more tax efficient.

                          Comment


                            #14
                            What's your thoughts on this?......

                            Private BTL being rented to the LTD company for nominal rent...

                            Ltd company then rents property as HMO?

                            Comment


                              #15
                              Sounds like tax evasion to me.

                              Comment

                              Latest Activity

                              Collapse

                              • When to claim accountant expense, same year or can it be added to previous year?
                                by cuttingman
                                Doing tax return for 2020-2021, paid accountant at the beginning of this month to check it. I gave them all my expenses including their fees and they put it in the tax return. But now that I thought about it because I paid in the 2021-2022 tax year I should add this expense to the next tax return....
                                18-10-2021, 11:42 AM
                              • Reply to When to claim accountant expense, same year or can it be added to previous year?
                                by Gordon999
                                The accountant has to start work after 6 April 2021 in order to cover the whole tax year of 2020-2021..

                                So accountant's bill is correctly entered as an expense in current year.
                                19-10-2021, 09:09 AM
                              • Reply to When to claim accountant expense, same year or can it be added to previous year?
                                by jpkeates
                                Expenses should be claimed when they're committed or paid, so it looks like a mistake to me.
                                18-10-2021, 11:59 AM
                              • Reply to CGT check appreciated, thanks in advance!
                                by Gordon999
                                OK. Your capital gain =£22,242 less £12, 300 = £9942 x 18% = £ 1790 tax bill to pay.
                                17-10-2021, 17:53 PM
                              • CGT check appreciated, thanks in advance!
                                by tatemono
                                Would really appreciate some help checking figures. Figures below are halved because my sister and I inherit in equal shares.
                                • property valued at £187,500 at date of mother's death in Jan 2015
                                • recent sale value £217,500
                                • improvement costs £5,318
                                • costs of sale: £2,440.50
                                • no reliefs
                                • my profit
                                ...
                                16-10-2021, 15:15 PM
                              • Reply to CGT Query
                                by jessa46
                                Thanks for reply, much appreciated.
                                I asked my solicitor about the 30 day rule and he emailed me back saying I didn't need to do this as no cgt to pay but, as I do a yearly self assessment, to include it my self assessment. I'll be sending it off this week. There's a website called 'xxxx' which...
                                17-10-2021, 16:33 PM
                              • CGT Query
                                by jessa46
                                I have never claimed CGT allowance but may need to after selling an inherited property. The property gained in value during probate. The sold price was £153k and the valuation at death for 'capital gains purposes' was £130000. There are 3 shares. My share of selling price is £51k and share of gain...
                                13-10-2021, 17:37 PM
                              • Reply to CGT Query
                                by AndrewDod
                                - You have to submit the CGT calculations within 30 days regardless of whether there is CGT to pay (else you get large and increasing fines)

                                No it is not added to your income for this purpose
                                17-10-2021, 15:54 PM
                              • Reply to CGT Query
                                by jessa46
                                Thank you for replies. Re how it was valued, this is where my head spins. Our mum passed away around 8 years ago. We got probate in 2019. Property was transferred into 3 siblings names in 2020, so that we could benefit from personal CGT allowance. The solicitor sent us a document 'for hmrc cgt purposes'...
                                17-10-2021, 15:13 PM
                              • Reply to CGT check appreciated, thanks in advance!
                                by AndrewDod
                                I'd imagine it would be payable as CGT by the individuals. Certainly that would apply to interest earned on savings during probate so don't think CGT would be different. It is definitely not payable by the estate (that would be grossly unfair to some beneficiaries who had not used various allowances)....
                                17-10-2021, 13:05 PM
                              Working...
                              X