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My salary and pension are currently paid by my IT Consultancy company © (financed by the repayment of a loan to my BTL company (P)). I am looking at moving to the salary/pension being paid by P directly. I have spoken to my accountant about this but he thinks HMRC consider BTL property companies to be Investment Companies rather than Trading Companies and any director's remuneration is not tax deductible.
When giving this advice, he wasn't aware how much work I do on a day-to-day basis to keep the properties up to scratch and he was going to have another look at this but I was wondering if other people had been told this?
You have two companies but only one salary. Surely you and your accountant can work out how to structure this. You don’t need a second opinion. Challenge your accountant (chartered accountant I hope) to advise you and follow their advice.
Chartered Accountant, Tax Advisor and Mortgage broker
(and BTL portfolio owner)
I have two companies and two accountants who specialise in the areas the companies operate in.
I haven't been taking a salary from the property company as previously I was taking dividends to take me up to the higher rate tax band. Once the limit on 'tax free' dividends came in, I was being paid interest on my director's loan account. There was no need to start taking a second salary as it would involve RTI every month for the same level of tax/NI.
I am now looking at winding up the IT company as I am unlikely to go back to consultancy work and if I do, I will just add a SIC to the property company (which may be advantageous from a partially exempt VAT perspective).
I have discussed taking a salary from the property company with my Chartered Accountant and he raised the concern about HMRC considering (by default) ALL property companies to be investment companies rather than trading companies. I asked about whether the Ramsay decision would have any bearing as I average about 20 hours work per week for the company and would have no other salary (which was considered in Ramsay). My accountant had not realised that I do most of the maintenance work myself (but accepted I did as he has only just done my accounts with over 300 items bought with no-one paid to fit them) so he is going back to look at the situation. I will be following his advice as otherwise my insurance against HMRC inspection will be invalid.
I wasn't asking other people to give me advice, but was asking if anyone else had been given this advice. I know that several people on here have companies paying them large remuneration packages (including pension) and their accountants may not have considered this. If they have, then I would be interested in hearing the justification which I could pass on to my accountant.
I’d consider it to be a management expense when you have an investment company. There is no doubt that investment activity does not have the same cost deductions against them as a trade. In my view your “salary” is a management expense and allowable against tax. Ramsay helps you define the company activity as a business not a series of investments which helps. Excessive remuneration would be a problem given Ramsay.
Ramsay is a complex case and important set of principles with big consequences. Ramsay has basically said that every business is different and the outcome will depend on the circumstances. Therefore everyone needs to take advice on this point.
I'd like to know the answer to this too. I had understood that salaries and pensions paid from a property letting company were deductible before corporation tax. Otherwise what's the point?
The starting point for a CT computation is the accounting profits. So if it’s a deduction in the accounts you should with a few exceptions get a tax deductions.
Pensions is one of those exceptions. Pension contributions to a registered scheme are only deducted when paid and the amount of the contribution needs to be appropriate for their work. So personally I think OP is going down the wrong route unless his other service business is incredibly small.
Get proper advice. UK accounting is based on an overall picture applying principles and less on a set of rules (US accounting is different as is rules based) so you cannot get complex accounting advice through blogs. Seek advice.
Yours sounds like a very straightforward question and it doesn't inspire much confidence when different experts give different answers. It's hardly surprising that people self-research and property forums are part of that. I am not an expert but I do have an I interest as I am planning to purchase my next property via my Ltd company in order to pay income into my pension fund. I also understand I can pay myself in dividends or salary if I wish. I am aware that a company that only derives income from letting commercial or residential property is regarded as an investment company for inheritance tax purposes but I have never heard that said in regard to pensions or salary payments. I find it worrying that your accountant has said that.
@DL don't you operate this way?
You pay your wife a salary and pension, right?
Is that being deducted from your profit before consideration for CT?