Setting up a Management Company make sense?

Setting up a Management Company make sense?

8:58 AM, 30th April 2020, About 4 years ago 13

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So, a while ago someone told me that you can set up your own management company. And use this company to ,

1, Collect Rent
2, Manage Visit’s
3, Manage Repairs

The management company then takes a fee and you get paid the difference. Of course you will then pay tax on both earnings.

Does this make financial sense?

Is this allowed?

Steve


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Comments

JamesB

21:03 PM, 1st May 2020, About 4 years ago

We have this set up and it works well (large portfolio) saving are worth it .. admin and costs are minimal

Simon Lever - Chartered Accountant helping clients get the best returns from their properties

12:08 PM, 2nd May 2020, About 4 years ago

It depends on individual circumstances.

For example company could be set up to manage the properties of a single property owner, say husband. Directors of the company could be husband and wife and shareholders husband wife and 18year old child about to go to university.

If wife has no other income then she could earn salary of, say, £8,700 per annum to get pension credits and pay no NI. If profits and depending on shareholding ratios up to £6,000 in dividends could be paid to 3 shareholders with no tax.

This could therefore shelter nearly £15,000 of income from tax at 40% - £6,000 – which would effectively pay for a year’s accommodation at university, assuming of course that the child did not use one of the properties in the portfolio for accommodation!

It does all depend on individual circumstances and crunching the numbers.

moneymanager

14:07 PM, 2nd May 2020, About 4 years ago

Adding another "not one size fitting all" scenario, my wife is the landlady and I have an Ltd to which I added the appropriate SIC code. In addition to the flats we bought, under seperate Title, a number of addional car spaces direct from the developer. Not being associated to residential property those spaces came with a VAT charge which I was able to reclaim by exercising an "Option to Tax", the downside of which is that parking income (other than to your own apartment tenants) is subject to VAT but you might, as we did (planned for!) qualify for partial exemption and then be abe to reclaim your input VAT on the rental business (most landlords being precluded from otherwise registering for VAT in the first place. She now has a marketing and management agreement with my Ltd which not only reduces her taxable income but has the collateral effect of continued VAT reclaims under the deminimis rules.

The result is VAT neutral on the management fees, VAT positive for her on the balance and profit extraction from the Ltd Co is another question

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