Setup letting agency to manage my properties

Skag

I've been reading that setting up a own ltd lettings agency to manage own property is quite a popular choice.
One thing I didn't get is, let's assume that this ltd charges the owner (same person) a management fee, and after expenses etc, the company's profits are 5k. The director then can get this 5k as year's dividend.
The receiver of the dividend (which again, is the property owner) should then declare this profit in his self assessment (which naturally be on top of the properties earnings). Won't this affect his tax, and therefore it's the same result as if he hadn't setup his own ltd to manage his properties?
Also, what kind of expenses can the ltd owner put in his company except from travel and food?

tacpot12

Your logic is correct; the profit from the agency business needs to be declared as income on your self-assessment return, so this wipes out any tax advantage of setup a separate agency.

I've not heard that setting up your own agency is a popular choice; rather the opposite I would say; I've never heard of it.

The benefit to doing so is that you are not giving the profit to someone else, and even if you have to pay tax on the profit, having that profit for yourself is better than giving it to someone else. Effectively having your own agency allows you to access services, such as tenant referencing, at cost. You do have to staff the agency, advertise properties, vet tenants, take legal advice on Tenancy Agreements, manage deposits, chase rent payments and deal with arrears cases, manage keys, repairs, inspect properties and deal with complaints.

The Limited Company owners (shareholders) can't put ANY expenses through their company; and the directors can only authorise expenses incurred wholly in relation to the business; e.g. a director can authorise travel to a remote property and food incurred while travelling; exactly as any employer would do. HMRC will expect meals and travel to be proportionate to the distance of any remote property being managed.

Dazed_and_confused

The dividend would be taxable income but won't necessarily mean a higher tax bill as there is currently a 0% tax band for dividends which means the first £5000 of dividends are taxed at 0%.

But because the dividends are still taxable income you could have more tax to pay for different reasons. For example only taxable income is (taxable) salary £50k and dividends of £5k. Total income is £55k. Your family gets child benefit of £2k.

As your income is 55k you will need to repay 50% of your child benefit so extra £1000 to pay although the tax on the dividends is £0

Similar things can crop up in various situations, such as income over £100k (so you lose personal allowance) and if you are receiving Married Couples Allowance or Marriage Allowance.

Skag

Actually, according to this (just a quick search, I'm sure there are others too), the dividend allowance of 5k is not taxable, and therefore not included in the individual's total income. So I agree with Dazed and confused above.
So for example if someone gets 50k from job, has £11,509.00 allowance, pays £8,696.40 in tax. If that person also gets 5k from dividends, he won't have to pay any tax on it. Plus, he can expense all the travel / food / (maybe laptops, office equipment) on the ltd.

Dazed_and_confused

You've slightly misunderstood. The whole point is the dividends are taxable.

There is no "allowance" which changes this but they get taxed at 0%.

So salary £50k dividends £5k and no child benefit then dividends are taxed at 0% end of story.

Salary £50k dividends £5k and £2000 child benefit then dividends are still taxed at 0% but you get to pay £1000 high income child benefit charge.

Same with higher earners. Say only income is salary £100k no dividends you get full personal allowance of £11500.

Add £5k dividends and there is no dividend tax to pay because the dividends are taxed at 0% but your income is now £105k so personal allowance is reduced to £9000 which will lead to extra tax of £1000 being payable.

Skag

Dazed_and_confused wrote: »

You've slightly misunderstood. The whole point is the dividends are taxable.

So taxed means that from the 5k, HMRC collects 0.
And taxable means that is part of the income now, therefore the income increases, and therefore are getting taxed as part of the income.

Right ?

So 100k is a band change. How about if taxable income is 60k plus 5k dividends? There won't be any extra tax on the sum of 65, right ? Only on the 60k.

Dazed_and_confused

£60k salary already stops you getting more than the minimum Married Couples Allowance and any Marriage Allowance and all Child Benefit would be clawed back by hitting £60k so in that situation it wouldn't change anything, simply gets taxed at 0%.

But mid £20k through to about £40k and £95001 through to £122998 salary (current tax year) there could be an impact depending on other factors i.e. only elderly can get Married Couples Allowance in the first place.

G_M

You'll get more responses from people who let properties over on the property forum here.

Or over on landlordzone

jimjames

Won't the dividend be after corporation tax so the profit will still have been taxed, albeit at a possibly lower rate?

If the company declares a £5k profit then you'll pay corporation tax on that so the actual amount available will be £5k minus 19%. You'll then get taxed on it yourself at whatever rate applies for your income