Spouses paying each other

chucknorris

I also posted this on the 'Cutting tax' forum board, but maybe this is a more appropriate forum board:

What I would like to do:
I do not want to do anything illegal, but I am willing to do what is considered legitimate by the inland revenue. My wife and I both own investment properties in our own names (we also own one jointly owned, but lets leave that one out of this for now). Would it be possible for me to pay my wife to manage my properties and vice versa? Or is that just taking liberties, and would be seen as such by the inland revenue? I was thinking about something along the lines of 10% of rental income for both management and finding new tenants (when appropriate).

Background:
I would like to pay more into my pension, by buying additional pension within the teachers pension scheme, when I join the 2015 scheme in 2020, right now I am a tapered member, and remain in the older scheme until 2020, and i have already bought the max allowed pension in that scheme.

When I join the 2015 scheme I can once again buy the max allowed within that scheme, which is currently £6,800 per annum. That however will cost about £112k, and I would have to buy it before my state pension age, which only gives me 4 tax years to do so. The problem is that I now only work one day a week for just under £11k, so my relevant income is not sufficient to buy what I would like to (I have plenty other income i.e. rental, dividend, interest etc).

trailingspouse

Ring HMRC and ask them. If you're unwilling to do that, then perhaps you have the answer?

As far as I'm aware there is not reason why one spouse can't pay the other for work done, provided they actually do the work and that they actually get paid. But granted you would be doing the same work (ie running a rental property) if you did it for your own houses, is it worth the effort of registering as employers, running RTI, PAYE, NI, taking out employers liability insurance, deciding if you need to be part of the workplace pension mularky etc etc? Because if you're going to employ each other, you would have to do it right - you are either an employer (with all the responsibilities that come with that) or you're not - you can't just pick and choose the bits that suit you.

chucknorris

trailingspouse wrote: »

Ring HMRC and ask them. If you're unwilling to do that, then perhaps you have the answer?

As far as I'm aware there is not reason why one spouse can't pay the other for work done, provided they actually do the work and that they actually get paid. But granted you would be doing the same work (ie running a rental property) if you did it for your own houses, is it worth the effort of registering as employers, running RTI, PAYE, NI, taking out employers liability insurance, deciding if you need to be part of the workplace pension mularky etc etc? Because if you're going to employ each other, you would have to do it right - you are either an employer (with all the responsibilities that come with that) or you're not - you can't just pick and choose the bits that suit you.

I was thinking along the lines of self employment, not PAYE (would that be a problem in this situation?), so we wouldn't be 'employing' each other, self employment income is eligible as 'relevant income'. I'm still thinking it over, but I suspect that the IR would think that it was too contrived. I don't want to ring them because if they did take that view, it isn't exactly painting myself in a good light to them. I may just have to increase my relevant income (but not by as much as I need to) by buying a holiday home in Spain (something that we would do anyway, obviously not just for more relevant income, that would merely be the icing on the cake, a bonus).

trailingspouse

Take a look at IR35. I think it would be hard to prove that you were both bona fide self-employed rental managers.

chucknorris

trailingspouse wrote: »

Take a look at IR35. I think it would be hard to prove that you were both bona fide self-employed rental managers.

Yes I think you are correct, I didn't think that it would be possible (it just looked too contrived), but I wanted to make sure that it wasn't. I may just have to go the obvious way of working two days per week (instead of one) and acquiring some holiday letting income.