A lot of people manage their own properties. As a result they don’t have to pay an agent which means they have lower tax allowable deductions – and a higher tax bills!
Now it’s completely up to you if you want to pay a managing agent and I am not suggesting that you should or should not.
Someone is still managing the property though even if it is you, your spouse/partner.
It’s not worth charging yourself a management fee as it would have no effect on your overall income but what about charging the other owner!?
We have a lot of clients where there is one high earning owner and another non-earner or a lower rate taxpayer. Typically husband and wives but it doesn’t have to be.
What if the wife earns £100k a year and is paying 60% tax on her share of the rental income but her husband is a basic rate taxpayer? The husband might be on £20,000 but that is not all he does. He manages the property. Entirely. Every part of it!
So long as it is done at commercial rates, and all supporting paperwork is in place, the husband can charge a management fee. It will reduce the profit made on the property and reduce the tax his wife pays. It will also reduce his share of profit (after all he owns half the property so has to meet half of the expense!).
He then has to show the income on his tax return of course as he is now self employed. Remember the property allowance? Well the husband can claim the self employed version – the trading allowance. It works very similar.
Right then so let’s say £20,000 rent after expenses (no mortgage interest just to keep the math’s simple!). Husband charges 10% full management. That brings rental down £2,000. His wife’s share of that is reduction is £1,000. She saves £600 tax.
Husband now has his own £9,000 rental income and £2,000 of self employment income. He claims the trading allowance which reduces his self employment by £1,000. His total income is still £10,000 so his tax liability is unchanged.
What did we do? Well we saved £600pa!
It’s not life changing but often tax isn’t. It’s about making sure you get all of the small things right every time.