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Ltd company becoming property managing agent

Director of Ltd wants to put the LTD as the managing agent of their two properties

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Hi

A client who has a newly formed LTD company currently owns 2 properties in which they rent out. The business activity of the LTD is mortgage brokering activities

They wish to make the LTD company the managing agent of both properties

Is there any tax benefit to the client if they do this? Any HMRC rules against this?

I assume the ltd co will handle rent payments and any expenses and in essence ''charge'' an amount to the Director the ''service''. Seems like a grey area unless there is specific rules on this?

I am not experienced in this particular field so I am not 100% on whether the Director can do this?

They are in the higher tax bracket so I assume the LTD will charge a % of the rent but then the Director take this out as dividends at lower tax bracket?

Any advice would be greatly appreciated!

Many thanks

Chris

Replies (17)

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By Accountant A
23rd Oct 2019 11:20

It sounds as if this is outside your area of expertise. Might be worth your client taking advice from someone else on this.

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Replying to Accountant A:
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By ChrisRollo91
23rd Oct 2019 11:54

I fully appreciate that but then how will I ever learn?

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Hallerud at Easter
By DJKL
23rd Oct 2019 12:27

Pricing re the service is really the only issue.

Having said that given the existing company hopefully already makes profits and already pays dividends any tax savings for a higher rate taxpayer really seem to be an illusion, it actually looks like your client is likely currently paying 40% on his rental income,( Keeping £60 from every £100) but if a part diverts through a company it will get taxed at 19% then the dividend will likely be taxed at 32.5%, so for every £100, £19 goes on CT then if the £81 is distributed 32.5% of that goes , being £26.33 ,and he keeps £54.67, so actually if company (or another company) already pays him dividends this seems worthless planning.

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Replying to DJKL:
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By Martin B
23rd Oct 2019 13:07

I disagree . This 'worthless planning' does actually work if you have done some basic tax planning and profit extraction strategy in place. You have assumed all the profits are distributed which may well not be the case.
OP has an opportunity to do some tax planning for his client.
Plus C tax rates are 17% from next year.

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Replying to Martin B:
Hallerud at Easter
By DJKL
23rd Oct 2019 16:31

We are told by the OP he is taking the profits(fees) out as dividends in his original post, my point is that if he has already used up his £2k allowance then it is hard to see a saving.

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"They are in the higher tax bracket so I assume the LTD will charge a % of the rent but then the Director take this out as dividends at lower tax bracket"

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By unearned luck
24th Oct 2019 00:12

"A client who has a newly formed LTD company currently owns 2 properties in which they rent out. The business activity of the LTD is mortgage brokering activities

"They wish to make the LTD company the managing agent of both properties"

Why do so many posters eschew punctuation and show so little care over pronouns?

On first reading the first sentence I was unsure if was a case of the flesh and blood client and the corporate one jointly letting the properties or that that the "in which" meant that the company owned the properties, but neither of those readings were correct. Why are so many people coy about a client's sex with 'they'? They are talking about a real person (I assume) so why not say 'he' or 'she' as appropriate? The more precisely you ask a question, the more likely that you will get a right answer.

I don't think that there is anything wrong in principle with your client's plan as long as the company's charges are both in line with those of third party letting agents and are commensurate with what the company does for the client. If the company didn't have another reason to exist, I doubt that it would be worthwhile.

I assume (but have not checked) that mortgage brokering is VAT exempt*, but if the company's total taxable outputs exceeded the threshold, or if the company voluntarily registered, the client would be out of pocket by the VAT the company would have to charge him or her.

*But I note that the company isn't a broker but is carrying out some form of activity associated with brokering, so VAT should be looked at closely. Misunderstanding what a company does can be very painful see the very recent FTT case of In Tandem.

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Replying to unearned luck:
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By ChrisRollo91
24th Oct 2019 11:21

Thanks for taking the time to respond

Apologies, I don't use the forum often so unsure on etiquette when it comes to talking about clients

Appreciate the response I will look into how it would affect everything including VAT

Many thanks

Chris

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By whitevanman
24th Oct 2019 00:41

It really isn't clear but I assume from the post that the client is the director (more than one?) and (s)he / they own the leased property.
I assume also that, upto now, the owner has managed the letting. So, why do they now want the company to do this?
Also, who in the company will actually do it ( the same owner?) and why choose the company (which has no previous for managing property and carries on a mortgage brokering business)?
HMRC are entitled to ask these and many other questions to determine whether any fee paid to the company is "wholly and exclusively" etc. It does look and sound as if the real reason for the arrangement is tax reduction and on that basis it could be challenged (and prove costly).
I have seen many similar cases and it really depends on how much is involved and whether it is worthwhile HMRC challenging the arrangement but as others have pointed out, the actual tax saving may not merit the effort / risk.

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By ChrisRollo91
24th Oct 2019 09:46

Hi All - thank you for taking the time to reply I do appreciate it

Apologies for any confusion in the post - I do not post often so unsure on proper etiquette on these forums

To clarify - the client (male) owns 2 properties. He has set up a ltd company (on his own, sole director) for his actual business activities and would like the ltd company to ''manage'' the properties in terms of handling rent and expenses, and then charge himself a service fee from the ltd company. He manages the properties himself currently and will continue to do himself just under the umbrella of the ltd company

Can he do this and are there any rules from HMRC on this that I can read on?

He hasn't mentioned transferring full ownership of the 2 properties to the ltd companies but will need to look at whether this would even be worthwhile with STLT and CGT

Thanks again

Chris

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Replying to ChrisRollo91:
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By whitevanman
24th Oct 2019 10:38

The simple answer is "Yes"- he can do it. But as has been pointed out, there are potential problems.
As to whether HMRC have any special rules on this - "No" - only those in legislation (which again, has been commented on).

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Replying to whitevanman:
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By ChrisRollo91
24th Oct 2019 11:16

Thanks Whitevanman - I appreciate you taking the time to respond

Chris

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By Tax Dragon
24th Oct 2019 10:03

What's the annual saving here? £60?

And the VAT point is well made - could be an annual cost.

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Replying to Tax Dragon:
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By Tax Dragon
24th Oct 2019 11:09

I should have read the thread first... I see DJKL has already made that point. I don't like it when others are so lazy so... I apologise. Sorry, DJKL.

As for

ChrisRollo91 wrote:

I fully appreciate that but then how will I ever learn?

Not by gambling with your client's tax planning. Perhaps the first time you encounter something entirely novel, you buy in advice. Learn from that advice. Second time, it won't be entirely novel.

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Replying to Tax Dragon:
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By ChrisRollo91
24th Oct 2019 11:15

Thanks Tax Dragon

I would never gamble with my clients tax planning - I was just stating that if I tell the client to go elsewhere for advice I would not learn myself for the future.

I use this forum as I believe it is a good way to get advice from various other professionals but I am more than happy to pay for advice and learn in areas I'm not strong at if it means doing right by the client which I will always do.

But I will always take the time to learn and understand the rules before doing anything .

Many thanks

Chris

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By JCresswellTax
24th Oct 2019 13:01

Are we now moaning at folk who ask questions when they are in the business but simply don't know the answer?

We moan when they are freeloaders.

We now moan when they need a bit of help to progress their knowledge and career.

Seriously man.

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Replying to JCresswellTax:
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By whitevanman
24th Oct 2019 13:09

I agree. No 1 person can know everything (with the possible exception of Bounce 100) and a little pooling of knowledge with those "in the business" can only be a good thing for all concerned. We all learn, often when we thought we knew and understood it all.

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Replying to whitevanman:
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By Tax Dragon
24th Oct 2019 13:18

I missed the moaning.

I really need to start reading threads more carefully!

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