Property Income Tax

by Readers Question

3 years ago

Property Income Tax

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Property Income Tax

My brother and I have for many years both been Self Employed sole traders in construction and building maintenance.

Over the last 3 years we have been concentrating more on acquiring BTL Properties and have so far built a portfolio of 14 properties which doesn’t give us much time to do any paid work, so are currently living off our rental profits. Property Income Tax

We own the properties equally as “Tenants in Common”.

My question is; can I pay my brother for working on and managing my 50% of the portfolio, and can he pay me for working on and running his 50%?

I do understand that we can’t pay ourselves for running our own share of the portfolio, but could pay an agent or spouse or anyone else that we see fit.

Thanks

Steve



Comments

Mark Alexander

3 years ago

Hi Steve

I can't see any point in you paying your brother or vice versa. You would reduce your rental profits but then be taxed on the income and possibly incur NI too.

If you have spouses who are not paying tax, or paying a lower rate of tax, then you could pay them a salary to reduce your rental profits and hence your tax bill.

I recommend professional advice - see >>> http://www.property118.com/member/?id=452
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Steven Tennant

3 years ago

Hi Mark,
Perhaps I didn't explain very well as it is my first post on your site but,
for example, this year we have both earnt about 1k each on Self Employment and are carrying BTL losses forward from previous years.
Therfore we are not using up our Personal Allowances for the year. If I paid him approx 8k that would reduce my BTL profit by 8k, and he won't pay any income tax as he will still be below his threshold and visa versa.
If I didn't pay him anything my BTL profits would increase by 8K and this would use up my carryover loses much sooner and would not be able to use our Personal Allowances.

Thanks
Steve.

Mark Alexander

3 years ago

Reply to the comment left by "Steven Tennant" at "13/06/2015 - 14:50":

You really need professional advice from a specialist property tax accountant - please see >>> http://www.property118.com/member/?id=452
.

matchmade

3 years ago

Steve - what you are trying to do is convert rental income for you and your brother into employed income, by paying each other for maintenance work on each other's halves of the business. I really can't see this working, as it's so transparent and could even sound faintly ridiculous: you'd be saying to HMRC "This piece of redecorating needed doing in House 1, so I paid my brother to do my 50% share. And this bit of rotten window needed repairing in House 2, but this time he paid me to do his 50% share of the work. Oh, and by the way, both of us just happened to earn £10,559 each so neither of us have to pay any income tax".

Where it *might* work is if you pay your brother to manage your share of the portfolio throughout a one-year or six-month period, when you could legitimately say you were working on other projects. Your brother would only be able to bill you for 50% of the time (and materials) spent, because the work also benefits him as co-owner.

But seek professional advice as Mark suggests: have you thought of using an accountant on a trial basis for a year, to see what he or she can suggest to run the business more tax-efficiently?

Alternatively you could pay a spouse who has no direct stake in the business, or why not take on an employee or pay a regular reliable contractor to do the maintenance work, leaving you and your brother free to work on more profitable/enjoyable projects? Aren't you just letting the tax/NI tail wag the dog here?

IS there a way that Steve's brother could be a BROTHER LTD company as a maintenance contractor and bill Steve all the work for the year? This in relation ONLY to Steve's tax position. Ie, Steve Properties pays BROTHER LTD £12,000 a year to undertake all the maintenance of the properties. Steve Properties claims that expenditure against yearly tax bill. All must be legit for all the work carried out in THE RENTAL BUSINESS (not the buy and sell, flip business). Steve Properties receive all the rent. BROTHER LTD receives fee for the maintenance.????

Also, what is the difference with spouse versus hired administrator doing the admin work for say 8k a year? Surely if you employ spouse or admin person then paye and tax and ni have to be paid?

Kev

Puzzler

3 years ago

14 properties would not equate to £8k pa. It has to be in proportion to work required or HMRC will ask very tricky questions!

If you don't have to pay tax anyway why are you worrying?

money manager

3 years ago

If you are carrying BTL losses forward why not use them first before looking to employ, no pun intended, more convoluted means? That will retain your PAs to use against other s/e or employed incomes.

Mark Alexander

3 years ago

Reply to the comment left by "money manager" at "20/06/2015 - 17:18":

Rental losses can be rolled over for future use but personal allowances cannot. What Steve is trying to achieve makes sense but he needs professional advice to get it right in my humble opinion.
.

Puzzler, what do you mean 8k a year would not equate to 14 properties? If Steve had 14 housing benefit tenants in his properties then believe me there is always a mountain of paperwork and catch up involved.

My question was "what is the difference with spouse versus hired administrator doing the admin work for say 8k a year? Surely if you employ spouse or admin person then paye and tax and ni have to be paid?"

So if Steve hired his brother or outside person to do work and Steve paid his ni and paye then what is the problem with that?

What Steve (I think) is trying to do is claim his "allowable expenses", be that maintenance and/or administration.

Kev

Mark Alexander

3 years ago

Reply to the comment left by "AA Properties Wales " at "22/06/2015 - 09:51":

I agree that £8k per annum is not OTT for maintenance of 14 properties.

I think the best suggestion so far is the creation of a limited company, e.g. "Steves Family Maintenance Ltd" and for the company to charge a maintainace management retainer (say £60 pcm per property) back to the partnership. Steve and his brother could they pay themselves a salary from that company to utilise their personal allowances.

There would be accountancy costs in relation to having the company but that may well still save money.

As I said from the off though, professional tax planning advice is necessary from a qualified tax accountant in order to get this right.
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