Totally confused by an Accountant – which way forward?

by Readers Question

8:11 AM, 10th October 2016
About 2 years ago

Totally confused by an Accountant – which way forward?

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Totally confused by an Accountant – which way forward?

Please can anyone help me find my light at the end of my tunnel? I’m looking to find an accountant who ‘understands property’ and will not tell me that Clause 24 is not that bad and well your rent is your pay. confused

I’ve worked my socks off these last 4 years on my own for two successful HMOs and now recently renting out my own home as I have recently moved in with my partner. With Clause 24 this will push me enough over into the 40% tax bracket making the extra tax due reduce my profit/wages/living income reduce by a good £500 pcm.

I have a Ltd company which I was considering closing as my service was teaching, can I rename the Ltd and add ‘property manager’ as my HMOs do take up a lot of my time as I manage everything myself and would like to pay myself! I would love to hear from anyone who will also due to the mortgage interest be tipped over by a good £10-£15K and would end up paying at least another £6-8K in Tax.

The crossroads for me is ‘am I earning enough from my properties to incorporate’ – probably not, do I sell one and re-buy in a Ltd – maybe. Do I take the amount in the 40% tax bracket and put it in a pension. Anything but pass an extra 8K to HMRC – is that my reward for working hard as a single mum with two kids who will want to go to University in a few years! My accountant wants £885 plus Vat to do a self return for 3 properties and a small caravan FHL?

Finally in search of a new accountant is it true ‘Clause 24 will be restricted to the basic rate of income tax and therefore does not effect basic rate tax payers?’ when my accountant said this I was confused? I replied ”Everyone is effected even a basic rate tax payer will have more income due to mortgage interest and therefore pay more tax even at 20% but like me it now will push me over quite a lot into the 40%.

Any advice would be really helpful.

Thank-you in advance for your time.

Dinah



Comments

Neil Patterson

8:15 AM, 10th October 2016
About 2 years ago

Hi Dinah,

Yes it can be confusing, because there is no one size fits all as everyone's circumstances are different.

That is why we created our tax planning tab to try and take everyone through their own solutions.

Please see >> https://www.property118.com/tax/

Chris Clare

9:29 AM, 10th October 2016
About 2 years ago

Hi Dinah

You have posed a few questions there so I will try and give you my opinion on some of them.

You can use the pre-existing LTD company, you can rename it but you will need to update its classification if you intend to carry out activities other than the teaching one it will no doubt be classified for now.

There is no earning threshold for incorporation I know people who have incorporated for single projects/contracts totalling a mere £1,000.

Finally I am no accountant (I do have one upstairs) so it would be irresponsible for me to give you tax advice, I will say that £900 for filing a tax return on 3 BTLs seems a little excessive.

What I would do is hunt round Property118 as I am sure there is an enquiry form about incorporating a property business, Neil or Mark can you help here? If they propose a strategy worth taking you could remortgage one of the properties to cover the costs of set up, but the fact is it will put you in a much better position going forward.

To be honest you might find that if you configure your situation right you will be able to grow your portfolio in the future thanks to lower taxes (emphasis on the might).

Dinah South

10:06 AM, 10th October 2016
About 2 years ago

Hi Chris, thank-you for your comments, I really appreciate your advice. I agree with you I also would like to rename/re classify my present Ltd if only for now as a 'property manager' and pay myself a small salary for running 2 HMOs a newbie FHL and a standards BTL (which used to be my own home) or I'm tempted to just put any extra money into a private pension. Is the 5K dividends allowance free of income tax and/or corporation tax? at least this would pay me my management fee. Better this route rather than self assessment and being tipped over into 40% due to the mortgage interest and not actually income in my bank.

Gunga Din

10:15 AM, 10th October 2016
About 2 years ago

I have four properties, divided into total 11 shops and flats. I pay my accountant approx £430, in Brighton.

Puzzler

19:12 PM, 10th October 2016
About 2 years ago

You will have to sell the property to the limited company and pay the new stamp duties. I found that there are only a few lenders so you will have to remortgage. Also the lender I used would not accept an existing limited company, even with the SIC changed, it specified it had to have been set up for the purpose. Tax relief will be given at the basic rate so if you are in the higher bracket you would be £4000 worse off on a £20000 interest bill (40% - 20%). Your accountant is a bit pricey. Find another one, and/or prepare the books yourself as much as possible.

money manager

9:01 AM, 15th October 2016
About 2 years ago

Reply to the comment left by "Dinah South" at "10/10/2016 - 10:06":

Dividends are not deductible for corporation tax purposes.

H B

13:23 PM, 15th October 2016
About 2 years ago

Anyone with any sense will move their property into a limited company. Apparently 63% of new BTL are through companies.

There is a small risk that HMRC will fiddle with the tax regime for small BTL companies, negating any benefit, but I think the risks of not doing this are greater.

Claire Smith

17:41 PM, 17th October 2016
About 2 years ago

If you are managing the properties yourself, why not charge the going rate (10% in our area) by your company as a management fee. Then you could pay yourself a dividend of £5000. If you have a partner, they could also take a dividend if they are a shareholder.

money manager

17:45 PM, 17th October 2016
About 2 years ago

Reply to the comment left by "Claire Smith" at "17/10/2016 - 17:41":

That's what we will be doing from next year albeit at rather more than 10%, will be paying a salary and pension contributions aswell.

Dinah South

17:52 PM, 17th October 2016
About 2 years ago

Reply to the comment left by "Claire Smith" at "17/10/2016 - 17:41":

Hi Claire,

Thank-you for taking the time to comment, much appreciated.

I also have had this conversation with my Accountant to charge a Management fee BUT I have been advised this will be seen by HMRC as a charge to avoid paying income tax unless I am managing a few other people properties too and seen to be running a business not just my own especially if prior the Ltd was a Teaching/Training company. I'm at the corner where I plan to pay into a pension anything over the 40%. All fun. Anyway two boilers need replacing so I might not even meet the 40% now!


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