Setting up a company to manage my own properties – is it worth it ?

Setting up a company to manage my own properties – is it worth it ?

11:40 AM, 30th April 2017, About 4 years ago 19

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I have 6 properties, some jointly owned with my wife, a couple with my sister. I do most of the day to day management, with two managed by agents.

I’m toying with the idea of setting up a service company to manage the properties and charging say 15% to 20% of gross rent to do so. My thinking is I can then take this income as dividend and thus reduce overall tax.

I have two questions….

1) would it be legal ?

2) is it worth it ?

Having looked at other discussion boards the issue get readily confused with transferring ownership to the company. At this point I’m NOT looking at doing it – though I may look at that in the future.

Thanks in advance

Arwel



Comments

by David Price

14:43 PM, 6th May 2017, About 4 years ago

A management company collects rent on behalf of its client. This money should be held in a special client account. None of this money initially belongs to the management company, it is not part of the turnover of the company.

At an appropriate time (determined by the individual contract) the management company takes its commission, perhaps 15%. Provided that over the year this commission is less than the VAT threshold then no VAT is payable.

I hope I am right for I have run my limited management company this way for the past 15 years, with the approval of my accountant.

by Mark Alexander

15:44 PM, 6th May 2017, About 4 years ago

Reply to the comment left by "damien D" at "06/05/2017 - 13:22":

Only if your fees were to exceed the VAT threashold
.

by Jon D

22:41 PM, 8th May 2017, About 4 years ago

I looked a bit further into this, and the letting agent Ltd Co. will need to be a member of a property redress scheme of which there are 3 currently eligible. The cheapest is £95+VAT per year but extra fees for any legal action.

Also, as Mr Price mentions, the business needs a separate client receiving account (Santander's free biz account has this option for no fee that I can see). Some of the PRS schemes require you to have client money protection insurance, but not the cheapest provider (they are actually called PRS). However I understand this insurance will become law soon.

Some PRS schemes also require PI insurance (public indemnity) which may be included in your Landlord's insurance.

Note that there are two approaches to a letting agent - one is a simple mgt fee as mentioned above but you can also sublet the property to the letting agent. The latter option will incur higher levels of corporation tax I assume, as the rent is company income. The former will tend to push up personal tax in that there will be no mgt fee.

So be very clear what you enter for 'Landlord's name" in the AST for the occupier. It must be your name unless you are subletting in which case it will be the Ltd Co. name. This is an important point if the Taxman asks to see the rental agreement - you have to be clear who the rent is going to.

by Mark Alexander

22:49 PM, 8th May 2017, About 4 years ago

Reply to the comment left by "Jon Delorean" at "08/05/2017 - 22:41":

You only need to be a member of a redress scheme if you are letting or managing properties owned by 'other people'. You don't need to join one if you are only managing your own.
.

by Jon D

14:42 PM, 9th May 2017, About 4 years ago

Now this is interesting, because we are suggesting to the Taxman that the lettings agent is a separate entity and indeed should have other clients in order to be credible. I read on another site that the Taxman would like to see other customers, but perhaps this is opinion only.

To fully qualify as a genuine lettings agent, the Ltd co would need to be registered with the PRS. The penalty for not being so is up to £5,000 I believe. Though who would invoke the penalty I'm not sure.

If we suggest to the Taxman 'these are my properties and this is my lettings agency' it sounds rather like a circular tax ruse?

by David Price

19:37 PM, 9th May 2017, About 4 years ago

Reply to the comment left by "Jon Delorean" at "09/05/2017 - 14:42":

"Though who would invoke the penalty I’m not sure."
The local authority, it tried to issue me with a penalty for not registering which only stalled because I am not a letting agent!

by andy p

22:58 PM, 9th May 2017, About 4 years ago

Reply to the comment left by "Jon Delorean" at "09/05/2017 - 14:42":

This is my concern regarding this method of operation, that HMRC don't consider it a legitimate scheme as you are essentially just redistributing income away from your personal liability via the LLP structure and the benefit this would bring.
I'm reassured that some contributors to the forum have evidently used this method successfully, some for a number of years. It would bring a real tangible benefit to my own circumstances in that I have this year stopped expansion due to the SDLT increase and Sec 24, and therefore going forward I won't have finance costs to offset. My rental turnover would make there ability to reduce up to 15% in management fees very attractive if this can actually be legitimately achieved

by Jon D

10:55 AM, 10th May 2017, About 4 years ago

Well, as mentioned they are separate legal entities - you and the Ltd co.
Mr Price indicates he is using a 'management co.' and not a 'letting agent' which is fair enough if that works for him, but personally I would struggle to define a difference. I guess they both process tenants, repairs etc?

To tick all the boxes, for the Ltd Co. one could create a website at little cost or maintenance, simple advertising, letterheads etc. Take on a couple of other clients possibly via family & friends and, gulp, swallow the PRS annual fee plus insurances.

For larger portfolios, doing it properly would be worth the effort for peace of mind.
Oh, and I understand that a 17% fee has not been challenged.

by David Price

13:28 PM, 10th May 2017, About 4 years ago

Reply to the comment left by "Jon Delorean" at "10/05/2017 - 10:55":

I do not operate as a letting agent rather all my lettings are rent to rent as a cooperative which is why I do not have to belong to any insurance scheme. If any one is considering setting up such a scheme and wants further details, please contact me through 118.


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