Landlords Bank Account Question

by Readers Question

8:00 AM, 27th February 2013
About 8 years ago

Landlords Bank Account Question

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Landlords Bank Account Question

Landlords Bank Account Question

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.”

Mark Alexander’s Bank Account Strategy

Mark Alexander - private landlord since 1989 and founder of Property118.com

Mark Alexander – private landlord since 1989 and founder of Property118.com

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.

Accountants Introduction Request



Comments

Freda Blogs

8:13 AM, 27th February 2013
About 8 years ago

My arrangement is much the same as Mark's, although not quite so sophisticated! I have a separate account for my properties and I do a manual sweep to a savings account when appropriate. It makes things so much clearer to view and unravel any issues as they occur. Doing my accounts and tax return annually is always painful, keeping your money separate makes it a little easier....

JOANNE CHAPMAN

8:47 AM, 27th February 2013
About 8 years ago

I also have a separate account for my rental properties, all my rental income and expenses go through this account so everything is easy to keep track of. Like Mark I have a deposit account which earns interest until I need the cash for refurbishments or deposit on another property. I could not imagine mixing up my personal account with my rental account it would be a nightmare to do your tax return.

Jonathan Clarke

10:11 AM, 27th February 2013
About 8 years ago

I have 4 accounts . All with Barclays and easily accessible online

1) Domestic Account - personal use
2) Properties - All my own rentals as part of my own portfolio
3) Properties - Clients that properties I manage and source for them( company )
4) Sweeper account - Manually sweep excess monies into this as and when

As interest rates are so low I don`t worry too much about religiously transffering every last spare penny into the sweeper account. Its good to keep monies separate though for clarity of my own mind but importantly for tax purposes so the individual activities do not taint each other.

Yvette Newbury

13:59 PM, 28th February 2013
About 8 years ago

For a number of years when we started renting properties my husband and I had just one joint account, the same one into which my salary etc would be paid. As I am an administrator I then realised that it would be much clearer if we had a separate bank account for the rent and outgoings associated with our rental properties. For ease of administration I asked our current bank provider if we could have another cheque account, in both our names, and they were happy to oblige. As soon as we started to use the new account it felt right, and now we use this separate account for anyhing to do with our rental properties, so that mortgage payments, service charge payments, anything at all to do with money in or money out relating to our properties goes through that account. I then sweep money away into our personal cheque or even a higher rate savings account as and when there is money over at the end of the month! The deposits we hold ourselves but these are all kept in a separate savings account of their own and when they are due to be repaid they are paid into the property bank account and paid away. This savings account is not touched under any circumstances, for any other reason. Using a separate account makes it so much easier to identify what payments are for/ who they are from which you would need in case HMRC wanted to see your statements in the event of a review. I would certainly recommend it to anyone, even if they had only one property, to separate their let account from their personal. Hope this helps.

14:48 PM, 4th March 2013
About 8 years ago

I've used a separate bank account for all of my rental transactions for about 12 years now. RBS have just told me that I need to close this account and set up a sole trader account with them; because I'm running a rental 'business'. I've argued that the account is for my investment income - if I traded shares, or had pensions, would those receipts need to be paid in to a separate business account - I think not!
Given the tariffs they already charge me on my building company's business account, I'm looking at a bill of £50 per month in bank charges from now on.
Has anybody else had a similar experience, and can maybe suggest a different bank who don't do this?
Otherwise, for anyone else currently with RBS, please beware!

Yvette Newbury

20:31 PM, 4th March 2013
About 8 years ago

In response to Andrew Kelso, I think the clue is in "Given the tariffs they already charge me on my building company’s business account". The bank have clearly decided that as your main business is "property" ie. building that they will link your rental activities as the same. Assuming you own the rental properties personally (and they are not owned by your building company) I am confident that you could open an account at any other bank and could then have a normal account, not a business one. I believe RBS are wrong on this one, but it will be difficult for you to explain it to them. To be hoenst I think it would be a good idea to keep your rental receipts and outgoings in a completely separate bank, yet alone account, so that you don't muddy the waters of your building company..


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