Do HMRC allow you to be a property manager for rental properties you own yourself?

adt123

Hello forum,

Does anyone know if HMRC have any rules regarding declaring income as a self employed property manager on properties you own yourself? 

The background here is that my wife and I would like to claim tax free childcare. She owns a number of rental properties and manages them herself which is more or less a part time job, however in the eyes of the Tax free childcare people none of this income counts as it is property income. An idea we had was instead of declaring all the income as property income, we could declare a certain percentage of it as income from her job as a self employed property manager, which then would count towards the eligibility for tax free childcare.

HMRC would still get exactly the same amount of tax from her, as we obviously wouldn’t deduct the percentage she declared for property management as an expense. (That really would be taking the p**s!) 

The only snag I can see is if HMRC don’t actually allow you to take an income as a property manager from properties you own yourself? I’ve searched the internet and cannot seem to find an answer, so any help would be appreciated! 

anselld

She can do it but I think she would need to show that property management was her actual occupation, for example by managing properties for other people as well as her own.  She would also only be able to use a percentage in line with market rate for managing agents eg 10-12%.

Regarding your third para, yes she would deduct it as an expense on the Property pages and then declare it as an income on the Self Employed pages otherwise she would pay tax twice on that income.  She might need to consider Self Employed NI.

Overall, it seems unlikely to be worthwhile.

mybestattempt

https://www.gov.uk/hmrc-internal-manuals/tax-free-childcare-technical-manual/tfc05200

She isn't eligible because she isn't a self employed property manager.

Penalties can be imposed if incorrect information is given.

saajan_12

Perhaps if you set up a company which you both own, and employs wife as a property manager? 
- the company pays corporation tax on rental income, deducting the management fees paid to wife as an expense. 
- wife declares the income and pays tax on that (sort of nets out with the point above except for differing allowances / tax rates)
- added hassle, solicitor cost and filing fees to set up the company which likely offsets the childcare savings 

theartfullodger

adt123 said:

Hello forum,

Do HMRC allow you to be a property manager for rental properties you own yourself?

Yes, but not necessarily to be paid for it.

Grumpy_chap

HMRC are clear on this.  Property rental income is unearned income.  It is ineligible as qualifying for child care, pension contributions etc.   There are no work arounds.  

Swapping properly already owned into a Ltd Co would incur considerable upfront costs and negate the objective - SDLT for starters.

More of a tax query than house buying / renting query.

adt123

Thanks for the info and advice everyone. I think the only way we could do it would be the ltd company route that has been mentioned above with wife employed by the company, as it is clear now that HMRC will not allow her to act as a paid property manager for her own rental properties. That would achieve the objective of giving her an earned income that would qualify for childcare, but the cost and hassle of setting it up will almost certainly outweigh the benefits. So I think we'll just knock this idea on the head for now. Always worth an ask though!

Bookworm105

adt123 said:

Thanks for the info and advice everyone. I think the only way we could do it would be the ltd company route that has been mentioned above with wife employed by the company, as it is clear now that HMRC will not allow her to act as a paid property manager for her own rental properties. That would achieve the objective of giving her an earned income that would qualify for childcare, but the cost and hassle of setting it up will almost certainly outweigh the benefits. So I think we'll just knock this idea on the head for now. Always worth an ask though!

for the sake of the nail in the coffin, transferring to a LTD would be spectacularly counter productive due to the costs of doing so now and the loss of tax (relative) efficiency whilst owing (loan interest treatment) and when eventually selling