8:00 AM, 27th February 2013, About 11 years ago 6
Scott Hymas has written in to ask what other landlords do in terms of bank accounts. Scott said …
“I have always used the same bank account for all my finances.
What I want to know is what does everyone else do and what is best practice?
Should I have one account for my personal banking and one for each property, one personal and one for all my properties or keep it as it is.
I keep an account of each properties cashflow separately and so far it has been worked.”
It is an interesting question which I think is worth discussing for a variety of reasons.
I have always kept a separate bank account for my rental properties. This makes it very easy to see if a rent payment is missing. I then have a connected account which sweeps all money over and above a certain amount and draws money back from the second account when necessary. Therefore, the first account has a constant balance. Interest is paid on the second account and I can see at a glance how much cash I’m holding at any time.
My accountants advised me to set up my banking this way as it is much easier for HMRC to review in the event of an investigation.
Also, as my property investment strategy involves refinancing my properties, when the time is right to do so, it is important that I can show clearly where any money has been spent or is being held for contingencies in my rental business.
In many cases the amount I have borrowed over the years has exceeded the amount I originally paid for the properties . HMRC will only allow landlords to offset mortgage interest against rental income on loans up to the original purchase price of the property plus any capital improvements unless they can prove absolutely that the money has been used for business purposes. Can you imagine how difficult that would be to keep track of, let alone prove if other none property income and expenses were mixed in to your bank statements?
I can’t think of a good reason to have a separate bank account for every property as that seems to be more hassle than it is worth.
It will be interesting to hear what others do in terms of their bank accounts though.
So in summary, my answer to Scott’s question is that my bank account strategy is based on advice from my accountants as it is closely related to my tax and accountancy strategy.
If you would like me to introduce you to my tax advisers please see the form below. Failing that please share any advice you may have for Scott in the comments section at the bottom of this page.
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