Management of properties via Ltd Co

by Readers Question

14:12 PM, 16th January 2017
About 2 years ago

Management of properties via Ltd Co

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Management of properties via Ltd Co

As I understand it, rental profits are considered “unearned income” and therefore that money cannot attract tax relief if put into a pension.management

Most of my properties have an agent who finds tenants, collects rent and carries out inventories etc but, as everyone on here will realise, there is much else to be done in managing a small portfolio from insurance to repairs to accounts etc.

It occurred to me that perhaps my Limited Company could be contracted to carry out those tasks – either on an hourly or fixed rate. This would have the effect of reducing my personal rental profit but providing a small income/profit into the Limited Company which otherwise has a very small revenue at the present Those company profits could then be put into a pension.

Do others have experience of this or have you put similar arrangements in place. If the company did or did not perform this service for properties I do not own personally would that help to pass any scrutiny by HMRC?

Any thoughts on reasonable rates – I probably put 5-6 hours/week on average into it.

Dillon



Comments

Neil Patterson

14:14 PM, 16th January 2017
About 2 years ago

Hi Dillon,

HMRC are very aware of the possibility of hiding rental profit through excessive management fees to a connected company or partner/relative.

Therefore they will only allow reasonable charges to be paid eg up to a maximum of 15% in London, but there is no hard and fast rule on this.

Mark Hartell

19:27 PM, 16th January 2017
About 2 years ago

Reply to the comment left by "Neil Patterson" at "16/01/2017 - 14:14":

Neil
thanks for your reply When you suggest 15% as reasonable are you talking 15% in total for any services including finders, taking deposits, collecting rents etc or 15% on top of what a letting agent does?

Charles de Lastic

17:29 PM, 17th January 2017
About 2 years ago

We have been doing this for a while as we have 19 buy to let properties. Yes the agents do a lot of the work but so do we.

We simply keep a timesheet of work done and time taken and charge accordingly as if we are ever challenged we have proof. Around £15 per hour for trained administration work is sensible.

An invoice is raised from our own Ltd company and charges our property account.

Mark Hartell

17:36 PM, 17th January 2017
About 2 years ago

Reply to the comment left by "Charles de Lastic" at "17/01/2017 - 17:29":

Thanks Charles - appreciated!

Simon Lever

12:22 PM, 18th January 2017
About 2 years ago

You can pay up to £2,880 net (£3,600 gross) into a pension scheme each year with no relevant earnings. Talk to your accountant.

Jireh Homes

17:36 PM, 21st January 2017
About 2 years ago

Other than being able to pay from Ltd Co into pension, what advantage is there for basic rate tax payer in this arrangement? Saving of 20% property tax on Self Assessment, but then liable to 20% Ltd Co Corporation Tax (at current rates). So would appear cost neutral.

Jon D

13:41 PM, 27th January 2017
About 2 years ago

Jireh - you have the dividend allowance of 5k with a Ltd Co.

Plus Lt Co. paying you rent for use of your house tax free, if you have rent going out (a loss transaction).

Plus you can leave money in the company this year if you had a very good year (like, higher rate tax amounts) and pay yourself next fiscal year to continue as a basic rate tax payer.

Then there is the option to reclaim VAT on work carried out (flat rate scheme at the very least) and expense costs like transport, phone computer, public & employer's liability insurance which will be attached to a co., rather than a person.

Also, it will help to avoid unlimited personal claims in the event of accident or death etc of the tenant or workers on your site. Elsewhere on this forum it mentions a contractor/tradesmen being "in your employ" when doing work for you on your site, so choose carefully and ensure you are insured.

If anyone has further comment on limiting liability behind a corporation I would like to hear more. There is always the risk that the Director can be charged with manslaughter etc on the basis they are controlling the company. I guess incorporation offers more protection but not 100%.

Jireh Homes

13:19 PM, 1st February 2017
About 2 years ago

Thanks Jon for the comments which are all valid. However, with already having a Ltd Co., paying minimum salary and maximum dividend and claiming allowances still trying to understand if worth charging my property income SA for "management fees". A charge would reduce my property taxable income, saving 20%, but then liable to 20% corporation tax (putting aside future reduction). Below VAT threshold so this is not a consideration.


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