Set up company to manage own property

sukh38

Hi all,

I was hoping you could help, I own a BTL HMO property in my name, I currently self manage it, I have had thoughts of setting up an ltd company, to manage this property, the ltd company could be in either in my name or wifes.

I have been advised the first £1000 of money earned via self-employed is tax-free?

Is this such a great idea and a cost-effective way or would I just end up paying more for 2 lots of accountant fees?

My thoughts are the LTD company would charge me a monthly management fee and would also charge a sourcing fee to find potential tennants.

Any help would be grateful 

caprikid1

You might be better to bite the bullet, create LTD company and move it in. Obviously you will pay stamp duty but if you intend on furthering your BTL journey it may work.

An accountant is the person to ask but this seems a lot of hassle.

anselld

Running a Limited Company is not the same as being self-employed so that part is irrelevant.

Broadly speaking any fees the Ltd charges would incur corporation tax at 19%.  Then you could take that as dividend so there could be a marginal saving if you have not already used the £2k dividend allowance.   Probably not worth the admin for management fees alone.

oz0707

Aren't the benefit of these hmo type properties they can be held within a sip as commercial?

saajan_12

sukh38 said:

Hi all,

I was hoping you could help, I own a BTL HMO property in my name, I currently self manage it, I have had thoughts of setting up an ltd company, to manage this property, the ltd company could be in either in my name or wifes. - does the company just manage, or do you actually want to transfer the property to the company? If the latter, then beware of (a) need a new mortgage in the company's name, (b) stamp duty at higher rate if the company pays for the property. 

I have been advised the first £1000 of money earned via self-employed is tax-free? - you wouldn't be self employed here, so not relevant. 

Is this such a great idea and a cost-effective way or would I just end up paying more for 2 lots of accountant fees? 

My thoughts are the LTD company would charge me a monthly management fee and would also charge a sourcing fee to find potential tennants. - so the company pays 19% corporation tax on the fee. You claim that as an expense against your rental income, so you save 20%/40% income tax. Then the money is in the company, so to get it back to you, either the company pays you a salary (@20%/40% income tax) or pays you a dividend (@7.5%/32.5%). There are some allowances for each, but then also some fixed costs so just looking at the situation if you scale up. 

Any help would be grateful 

If you have some more numbers, can advise further. However generally, unless you have a high income (&tax rate) now and can wait to get the money back once you retire and expect a very low income at the time (no ongoing rental income) then its usually not worth it.

theartfullodger

Hopefully chancellor will tighten up on the tax fiddles (legal currently) that makes this appear attractive at the moment.

saajan_12

Its not attractive even leaving the fiddles open.. If you just take a £1k management fee, then
At basic rate, you save 20% income tax and pay 19% corp tax.. saving 1% or £10, before you get to setup costs. 
At higher rate, you save 40% income tax and pay 19% corp tax.. saving 21% or £210, still less that set up costs. 

The above assumes you have room in the dividend allowance to extract the money as a dividend.. if you scale up then its actually more costly. eg for a £10k management fee, then 
At basic rate, you save 1% as above on 10k (£100) and pay 7.5% dividend tax on 8k (-£600).. net £500 loss
At higher rate, you save 21% as above on 10k (£2100) and pay 32.5% dividend tax on 8k (-£2600).. net £500 loss

sukh38

theartfullodger said:

Hopefully chancellor will tighten up on the tax fiddles (legal currently) that makes this appear attractive at the moment.

Thanks for posting something unrelated I appricate you having time to do this.