We have received four questions from one of our readers as the final date for submission on-line of 2011-12 tax return looms asking:
1. Are NIC’s payable on rental profits accrued by an individual, i.e not a company? I believe this is classed as unearned income and does not attract NIC’s liability.
2. Can I employ my wife to carry out the administration work for my properties? These are owned solely by me as an individual, not a business. She is a housewife.
3. If the answer to Q2. Is yes. Can I pay her up to her nil rate allowance, thereby reducing my own tax liability by that amount?
4. If I opt to do this now on my 2011-12 tax return, is this likely to incur a penalty for not registering this at the beginning of the tax year, and how much is the penalty likely to be?
Property118 asked their accountants to provide some advice
The answers are as follows:
1) This will depend on the type of rental income generated, however in most cases rental profits generated by an individual are treated as an investment business rather than a trading business and therefore class 2 and 4 NIC is not payable.
2) Yes, you can employ your wife and pay her a salary for carrying out administrative duties. However, from 6 April 2013 (or immediately for new employers) the HMRC Real Time Information System commences for employers and all payments made to employees regardless of the level of payment need to be reported to HMRC on or before the payment date. There are also other procedures which need to be put into place before a salary is paid.
3) You can pay any amount you like provided it is a reasonable amount for the work undertaken. There are however National Insurance implications for amounts paid over £144 per week for the current tax year (£136 for 2011/12), and PAYE implications for amounts paid over the personal allowance. Please note, you will only get deduction against your rental profits if salary payments have actually been made.
4) I think you are talking about registration of the payroll scheme. Depending on the amounts paid and provided the correct procedure is followed it may not be necessary to register as an employer until 6 April 2013, so there would be no penalties for late registration. However, if payments have not been made and the correct procedures have not been followed then I would not recommend that a deduction is claimed in your rental accounts.
To take best advantage of tax rules you need specialist advice, not just somebody who will charge you a small fee to produce tax returns for you. Landlord Tax is complex, not just in terms of income and expenditure but also in respect of capital allowances and capital gains.
My name is Mark Alexander, I’ve been a landlord since 1989 and developed a substantial property portfolio. I’m also the founder of Property118.com – I’m not an accountant but I have learned a lot about tax as a result of having employed a very good firm which has a specialist tax section just to look after landlords and property developers like me. If you would like me to introduce you to the firm I use, with no obligation of course, simply complete the form below.
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