Reducing tax on rented out property

lesshaste

00ec25 wrote: »

you are comparing chalk and cheese

the relative profitability of a given business's price v cost equation bears no relation to what you are asking about, which is how can I divert some income from the highly taxed me to the lesser taxed her.

That is why HMRC can draw on settlements legislation to say that the income received by her is in no way commensurate with the work she did, and therefore that income is purely a figure invented to avoid tax, and hence falls foul of said settlements legislation.

claiming that she is "entitled" to 12% commission won't wash because such commission is based on the fact it has to cover all sorts of overheads that she simply does not have. The fact that "the market" is willing to pay 12% (which is high even for a fully managed service BTW) does not give her an entitlement to say that is the same rate I can be paid in order to avoid him paying tax.

I completely take your point about how the HMRC are likely to see it. However, in relation to what estate agents charge, take a look at

https://www.foxtons.co.uk/help/fees/

Lettings only 13.2% (11% + VAT)
- Renewals on 1st 2 years' 12% (10% + VAT)
- Continuation period after renewals 7.2% (6% + VAT)

Lettings & property management 20.4% (17% + VAT)
- Renewals on 1st 2 years' 16.8% (14% + VAT)
- Continuation period after renewals 12% (10% + VAT)

That's 20.4% for the work my wife is currently doing.

BoGoF

Please explain exactly what duties your wife will be carrying out on a regular basis. If you have a regular tenant who pays on time then I bet very little.

You simply cannot say an agent charges x% so that is a reasonable amount.

Pennywise

lesshaste wrote: »

That's 20.4% for the work my wife is currently doing.

Paying a legitimate business to perform services will always cost a lot more than employing someone yourself. That's why some businesses employ their own book-keeper at a tenner per hour rather than pay their accountant £40 per hour to do it. As others have pointed out, it's because of the costs of business, i.e. premises, support staff, management, insurances, training, sick pay, holiday pay, etc etc.

Just because you'd pay 12% or 20% to a professional business doesn't justify you artificially paying that kind of money to a spouse, effectively as an employee, as she'd have none of the business running costs.

lesshaste

BoGoF wrote: »

Please explain exactly what duties your wife will be carrying out on a regular basis. If you have a regular tenant who pays on time then I bet very little.

You simply cannot say an agent charges x% so that is a reasonable amount.

She does exactly what an estate agent does when letting and managing a property but I take the point that's not how the HMRC will measure things.

lesshaste

Pennywise wrote: »

Paying a legitimate business to perform services will always cost a lot more than employing someone yourself. That's why some businesses employ their own book-keeper at a tenner per hour rather than pay their accountant £40 per hour to do it. As others have pointed out, it's because of the costs of business, i.e. premises, support staff, management, insurances, training, sick pay, holiday pay, etc etc.

Just because you'd pay 12% or 20% to a professional business doesn't justify you artificially paying that kind of money to a spouse, effectively as an employee, as she'd have none of the business running costs.

It does almost make it sound like she should become massively inefficient

BoGoF

lesshaste wrote: »

She does exactly what an estate agent does when letting and managing a property but I take the point that's not how the HMRC will measure things.

That's not the question I asked though.