Setting up a property management company?

by Readers Question

10:35 AM, 17th July 2018
About 4 months ago

Setting up a property management company?

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Setting up a property management company?

I manage my late husband’s portfolio of 8 properties. At the moment I have no other income as I’m so busy with these, but may in the future get a part time job. I have 3 children – 2 at university, 1 school.

Am trying to find legitimate ways of reducing my income tax with s24. I’ve been reading about setting up a management company at a fee of 15%.

Is this a good idea? How would I do this? Who would do it? Is it costly?

If it’s a goer, please could someone explain to me really simply how it would work and how I would save tax please.

Thanks

S Peck



Comments

Neil Patterson

10:41 AM, 17th July 2018
About 4 months ago

Hi
15% would be the absolute maximum HMRC would likely let you get away with charging your portfolio if you are in London and less if outside.
Yes you would be adding to the costs of your portfolio and reducing its net profit for tax purposes. However, you need to think carefully about the economies of scale and the costs of setting up an agency, accounting fees and also don't forget the agency will be liable for corporation tax. Although VAT is unlikely in this scenario.

Gromit

11:37 AM, 17th July 2018
About 4 months ago

My understanding is that HMRC would not look favourably on this if all you are managing are your own properties, and will deem this a tax avoidance scheme falling under GAAR rules.

Mark Alexander

14:34 PM, 17th July 2018
About 4 months ago

Have you considered making your older children partners in your existing rental property business?

Some, but not all, of the potential tax advantages are outlined in the case study I have linked below.

https://www.property118.com/three-dimensional-tax-planning-iht-benefits-case-study/

Please see our main tax page and book a private consultation to identify the optimal tax structure for yourself.

Sjp

14:55 PM, 17th July 2018
About 4 months ago

Reply to the comment left by Gromit at 17/07/2018 - 11:37
Hi. Why would it be considered tax avoidance? Thanks

AA

15:01 PM, 17th July 2018
About 4 months ago

Reply to the comment left by Sjp at 17/07/2018 - 14:55Because as the sole person delivering the service and the only job she has it would be a contract for SERVICE and not SERVICES. Therefor she would be deemed t o be an employee of the agency and hence the agency would have to pay employer taxes i.e NI contributions … something like that.

AA

15:14 PM, 17th July 2018
About 4 months ago

If you were paying your children ( the ones at Uni) for work done , that would fly. Even with the current tax regime it is not illegal to pay relatives or family.
Anyone correct me if I am wrong - the agency is not a recognised legal entity like a limited company therefor it has less of a legal standing whereby you could have dividends taxed at a lower rate. However Gromit is right - the GAAR rules are very much that, general and all encompassing.

Gromit

16:41 PM, 17th July 2018
About 4 months ago

Reply to the comment left by Sjp at 17/07/2018 - 14:55
HMRC will view the management company as being set-up purely for the purpose of avoiding of tax not a truly commercial venture.

Sjp

18:30 PM, 17th July 2018
About 4 months ago

Reply to the comment left by Gromit at 17/07/2018 - 16:41
My accountant suggested it!

Mark Alexander

18:42 PM, 17th July 2018
About 4 months ago

Reply to the comment left by Sjp at 17/07/2018 - 18:30
What your accountant has suggested is perfectly legal. Disregard The scaremongering.

Gromit

18:45 PM, 17th July 2018
About 4 months ago

Just ask HMRC for clarification if they say "Yes" then you're in the clear. (get it writing though).

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