Holiday letting property - salary

debsy72

I'd like a little advice please.

We have a ski property which we let out during the year (satisfies current FHL rules and will just about satisfy the 'new' rules).

My question is:

I take all the bookings, correspond with guests, email/send documents, liase with agent who cleans property and meets guests etc. Basically I do the job of a holiday letting agent. Plus I do the full spring/autumn clean inbetween seasons, I travel out there.
I registered as self employed last year when I did a bit of party-plan selling which has finished but leaves me with a SA form.

Can I pay myself a salary for this as I am currently a non-taxpayer (not working, kids at home)?
I'm hoping I can do this to reduce any profit (we don't make much) so that my husband doesn't have to pay 40% tax on his share.

Your comments and help would be much appreciated.

Mahmood_Reza

If the FHL is registered as a 'partnership'/joint names the payments made to you will not be (legally classified as salary and thus have no impact on profits. If the FHL was registered (say) in your name then profits would be assessed on you and taxed at basic rate - as husband and wife the transfer of your husbands share to you would not attract capital gains tax, but when sold any gains would be assessed on you only and you would lose one annual exemption (£10,100).
If your kids are old enough you could pay them a salary and claim this - it must be commercially acceptable and commensurate with their duties, eg a payment of (for example) £100 for 2 hours work would not be acceptable

chrismac1

As this is techincally trading profit and not rental profit, I'd suggest:

1. Running it as a partnership.
2. if profits permit, allocate 5,700 to yourself as salary and pay self-employed NI so you get a range of state benefits and a credit towards state pension. Your work as described clearly justifies a salary of this level.
3. Split the remainder of the profits in a tax-efficient manner without completely taking the mickey.

debsy72

Thanks chrismac1, something to think about, more research needed!

Am I right in thinking it's classified as trading profit because the nature of the business and it meeting FHL rules as apposed to someone just renting a property on a long-term let?

chrismac1

I have various clients with FHLs - living as I do in the Lake District - and you can PM me for full details on the reliefs which are on my website.

I think the logic is that FHLs are more generously taxed to encourage UK tourism. Labour were all set to scrap them in April 2010, but ran out of Parliamentary time.

The new Government is reviewing the rules and nothing is certain until the next Finance Act. The general "best guess" is that the qualifying letting period could be extended, thus making it harder for lets to meet the FHL test.

Paradoxically this will ensure that top quality, well marketed properties already making nice profits qualify for FHLs. But more marginal or newer properties - or for example in my local area recently flooded properties - don't make the cut. So there may need to be further opt-outs which in turn may make changes less likely as the new Gvt does not want to head down the Labour road of rules on rules on rules.......

Take a typical Cockermouth FHL with a potential customer on the phone. Many will ask:

"Have you been recently flooded or affected by the floods?"

Answer yes and the phone often goes dead. So bookings are down, so they fail to make the new FHL cut which is a nasty double whammy when they need help from the tax system not a kick in the teeth.

debsy72

Thanks again, I've picked up your website from your profile.

I have already sent my comments to the consultation for FHL (I believe ending on 22nd Oct). Their reply didn't help much so we'll just have to wait and see.

The AIA is the bit baffling me at the mo. We only started trading in Dec 09 so had a lot of outgoings in the first few months on furniture, bedding, towels, kitchen equipment. Had carpets fitted and installed a secure bike store. I'm unsure whether this comes under AIA and what is the limit that can be claimed (I'm talking about a spend of under £5k). My google research hasn't enlightened me just added to my confusion. I understand the day-to-day income and expenditure bit. :wall:

chrismac1

I should add the standard piece of advice I give to clients forming partnerships - you are now jointly and severally liable for any debts arising from the business.

This may not matter much in your case - I hope not! But for "risk" businesses I normally advise operating as a sole trader as then at least 1 member of the couple can rmain solvent and escape aggressive creditors if things go wrong.

shamac

Sorry to jump into your thread but i am in exactly the same position as you and wondered-we made just over £2k profit last year after deductions-can i pay myself a wage from this reducing profit to nil?

chrismac1

No. A "wage" to yourself = drawings and hence no profit impact.

Where you might have heard of people paying themselves "wages" is if they have formed a limited company of which they are sole director. The company is legally separate from the owner, hence can - and usually does - pay the director / owner a salary.

chrismac1

Debsy,

Some of my clients with new Lake District FHLs are in exactly the same position with regard to "one-off" spends making the property 4 or even 5 star standard and hence getting a higher rent. My advice is to think long term, given that most folks are going to want to hold such a property for some years.

You can either claim for 10% of the "net" rentals - which could be a decent sum in year 1 if you started in April or May or could be totally rubbish if you started in March! Or you can claim for actual spends. What you can't do is switch back and forth every tax year to scoop the maximum of the two. However, in your first year if you want to go down the 10% route long term, I would ask on the tax return for using actuals on the "concessional" basis - which means it is at the discretion of HMRC.

Some of my clients have poor record keeping - missing invoices from local contractors unlikely to be able to produce a copy quickly should an inspection take place, for example. My advice to them is 10% because this is "bomb-proof" in the event of an inspection so long as your rental figure is itself accurate.

"Net" rent = deduct anything like council tax normally paid by the tenant but paid by the taxpayer.

debsy72

What about expenditure on things like heating? We plan to move and replace the ancient bolier after xmas. How does that fit it to the capital expenditure claim?

My record keeping is impeccable! So we just have to decide which way is more beneficial for future years.