Can I employ my wife to manage my properties?

by Readers Question

9:32 AM, 13th December 2013
About 5 years ago

Can I employ my wife to manage my properties?

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Can I employ my wife to manage my properties?

I own 6 BTL’s, all mortgaged, acquired over 12 years. They are all in my sole name. I employ local letting agents on a let only basis, managing the tenants myself.

I now struggle to manage them as well as I like due to time constraints /work commitments. My question is this; could I employ my wife to run them and pay her a salary / fee for this? She is unemployed after maternity leave and wishes to be a full time house wife but is willing to run and manage the 6 properties? Can I employ my wife to manage my properties?

Net rental profits are around £6,000 per annum with me being a higher rate taxpayer.

Any advice welcome, thanks

Oliver



Comments

Mark Alexander

9:47 AM, 13th December 2013
About 5 years ago

Hi Oliver

The simple answer is YES, I believe you can, and based on your circumstances it seems like it would make good sense to do so from a tax perspective.

May I ask how much you pay your letting agent for tenant finds?

The reason I ask is that you could pay your wife to administer your property portfolio as opposed to manage it. It is not illegal to overpay somebody, therefore, even if your wife only spend half an hour every month doing your books there is nothing wrong with paying her £500 a month for that, i.e. £6,000 a year which would wipe out your rental profits. Your wife would then be able to use her single persons tax allowance and pay no income tax at this level, assuming she has no other sources of income of course.

The amount you pay for tenant find only is relevant becuase you may be able to contract out the management of your entire portfolio for £150 pcm plus VAT and that would include all of the following.

  • Visiting your property, taking particulars and floor plans.
  • Setting up an online account to store your documentation so it can be accessed at any time
  • Advertising your property on the major property portals
  • Viewings
  • Referencing tenants and guarantors
  • Inventory and schedule of condition prepared by an AIIC qualified inventory professional
  • Tenancy and Guarantor Agreements
  • Taking meter readings on check in and check out and informing utility companies of tenancy change over
  • Deposit registration
  • Organising Gas Safety Certificates as required (additionally charged)
  • Rent Collection with payment forwarded to your account by BACS and monthly rental statement
  • Maintenance management
  • Periodic property checks
  • Check Out at the end of the tenancy

Is it really worth saving £150 pcm and lumping all of this work onto your wife?

This service is provided by an ARLA accredited letting agent by the way. They have client money protection cover and professional indemnity insurance. The owners of Property118 were so impressed with the feedback we received from readers we had referred to this company that we acquired a 26% stake in the business.

For legal reasons I have to point out that I am not insured to provide you with tax advice and you should consult a qualified account. This is a link to the Property118 member profile of the guy I use if you need some help

To contact the letting agent I have mentioned above please completed the form on this linked page

Property118.com helps 1,000′s of landlords, tenants and letting agents every day to better understand their legal rights and responsibilities. Please help support our campaign and CLICK HERE
.

Lucy McKenna

10:20 AM, 13th December 2013
About 5 years ago

Would it be possible to pay the Wife if the properties are jointly owned? I spend a lot of time on our properties.

Lucy McKenna

10:27 AM, 13th December 2013
About 5 years ago

I like the idea of the suggested letting agent, definitely next time. Our agent just finds the tenant, no management and our local agents fees are huge, really huge. Our properties are popular and nearly always let to almost the first person. And on one of them the agent has renewed the same tenant now for three years with no reduction in fees, this happens quite regularly.

Mark Alexander

10:33 AM, 13th December 2013
About 5 years ago

Reply to the comment left by "LucyM " at "13/12/2013 - 10:20":

Hi Lucy

You would need to talk to your accountant about apportionment. Presumably your property portfolio is set up to trade as a partnership? It is certainly possible for one partner to take a salary from profits before splitting the remaining profits between husband and wife, even if the remaining profits are just £1.

If you are spending a lot of time managing your properties then maybe you should think about what that time is worth to you. People say you can't buy more time, which is true as there are only 24 hours in a day. You can, however, choose how you spend that time and whether to outsource your property management vs doing it yourself is one of the choices you are already making every single day. Have you made the right choice? What is the time you spend managing your properties really worth to you?
.

Lucy McKenna

10:36 AM, 13th December 2013
About 5 years ago

Thanks Mark, I am definitely thinking.........

Neil Patterson

10:48 AM, 13th December 2013
About 5 years ago

It's a no brainer. If I could free up my time like that I would go and work part time in my gym like a bus-mans holiday or come to think of it Hotel Chocolat!

Gary Nock

10:51 AM, 13th December 2013
About 5 years ago

Oliver / Lucy,

The advice given below is given in good faith and you should always consult you own professional advisers before taking it ( that's my disclaimer out of the way!!)

HMRC as we all know are a strange animal. Property letting for landlords is not classed as a business. But they do allow the costs of running it including letting agent fees. However, if you contrive to pay your spouse as purely a tax evasion measure of convenience then they will eventually come knocking on your door. Unless of course you are an MP - then its alright!

It is best to put some corporate "distance" between your own property letting and any mechanism used to get money out for a spouse. One way of doing this is to set up your own letting agency. This does not mean getting High St offices, etc .You can set your wife up as a sole trader. Register her for Class 2 contributions and tell HMRC she has started her own letting business. You then charge yourself the going rate for management fees which are anything between 10 and 15%. So ABC Lettings (owned as a sole trader by Mrs Bloggs) invoices Mr and Mrs Bloggs Properties each month 15% on one invoice etc for management services. However, it may be best to also let or manage a couple of properties for someone else so that you can be seen not to be using the letting business as a tax evasion measure. You can also claim for travel to the properties, inspections, printers, ink, Ipads, etc etc. If you want to add an air of legitimacy then Vistaprint host web sites for just over a tenner a month and if you can use Microsoft Word you can build one in about an hour. You only pay tax on the profit made on the business and with a personal allowance of £10,000 this coming year, and various allowances and claims, then tax is minimised.

If anybody is nervous about this remember that very large companies, which shall remain nameless, but have connections with rainforests and descriptions of ancient greek warrior ladies...(Sorry Mark...is this too much information and likely to be moderated) will set up companies in countries which have lower tax rates to charge companies set up in the UK to avoid tax....tax avoidance is legal...tax evasion is not. So UK company makes £1,000,000 in profit. Overseas company then charges UK company.......£1,000,000 in "management fees". So whats sauce for the goose...as they say... (nice to keep it seasonal I think)

And my firm of accountants are happy with the arrangement.

So in a nutshell Oliver and Lucy - yes you can as long as you are a bit smart about it.

Mark Alexander

11:04 AM, 13th December 2013
About 5 years ago

Reply to the comment left by "Gary Nock" at "13/12/2013 - 10:51":

Hi Gary

There is certainly nothing legally wrong with what you have suggested but I do think it is overly complicated.

What we have both suggested is restructuring of tax affairs, neither are tax evasion which is illegal, tax avoidance is perfectly fine in law, although frowned upon by some in society. However, I quote Inland Revenue Commissioners v The Duke of Westminster (1936 19 TC 490), which held: “Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be.”
.

Gary Nock

11:32 AM, 13th December 2013
About 5 years ago

Hi Mark,

Same destination different route and same result I think. However with setting it up as a lettings business it gives you more "flexibility" with what can be claimed. As a property rental business we were told that we could not charge the cost of a vehicle to it merely a cost per mile. But if you are a letting agent then you can contract hire a vehicle ( used for business only of course!) Charging our property business via our lettings business was suggested by our accountant as a means of legitimately getting money out of the rental income stream without any possible issues.They told me that if you pay your spouse directly from the property income stream then this is either (a) self employed income anyway and has to be declared to HMRC or (b) she is an employee of the main property rental "business" and you have to register her with HMRC anyway. The one thing that HMRC will frown upon if you just deduct £500 a month is if you have neither employed your spouse or your spouse has not registered for self employed. Somewhere along the line there has to be a formal auditable arrangement so if you are subject of a tax investigation then you can plead that you are totally innocent in that you have been open and transparent with HMRC in telling them about the income whether as an employee or self employed.

I'll shut up now!!

Mark Alexander

11:46 AM, 13th December 2013
About 5 years ago

Reply to the comment left by "Gary Nock" at "13/12/2013 - 11:32":

Hi Gary

I see where you are coming from, particularly in respect of contract hiring a car. That's not an option for me as my wife is employed full time and she earns more than I do.

The great thing about taking advice from your accountant is that if he is wrong (I very much doubt that he is wrong by the way) then you could always claim against his Professional Indemnity Insurance policy. Forums are a great way to explore possibilities and to discuss with our peers how they organise their tax affairs, however, that's no substitute for individual professional advice as I'm sure you will agree 🙂
.

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