Abode Letting Agents Manchester are here to help with all angles of your property business. As we are landlords ourselves we know a thing or two about the intracacies of the business. We often get people comeing to us at Abode letting agents Manchester and asking how they should invest in property, should they set up a company or buy properties in their partners name. Here is a little explanation of the best way to proceed.
The most common way of investing in residential property to rent out is as a Private landlord. Most landlords own properties in their own names, as this is the easiest way to obtain a buy to let mortgage.
Am I a Private Landlord or a Sole Trader?
A sole trader is an indiviudal who buys and sells products or sells a service. SO for example, plumbers, electricians and taxi drivers are sole traders. However crucually, sole traders pay National Insurance at approximately 10% of their business profits. Private Landlords do not!
I own properties with my spouse – are we a Partnership?
A partnership is where two or more people join together to create a joint business that is not a company. Most landlords who own properties with their partners are not a partnership, ie they do not file partnership tax returns and do not need to.
The main benefit of operating as a partnershiip is the ability to shift profits more easily between partners.
I have a trading name for my property business, am I a business or a Private Landlord!?
So you like to trade as “The Best Property Company” – that is fine, don;t worry this does not mean you are a business.
Your business bank account and cheque books can show the trading name and your name underneath, so for example;
The Best Letting Agents Manchester
This is a great way of giving yourself a professional business like look, have a website, good business cards but behind all of this you are still a Private Landlord.
How do HMRC class Private Landlord?
HMRC class us Provate Landlords as “investors” not sole traders. The good thing about this is that you won;t pay National Insurance as me
As a private landlord you are able to claim the £9,440 income tax personal allowance and pay 20% income tax up to the Higher Rate limit of £41,150 (2014 tax year).
This means a personal tax bill of just £6402 on net profits of £41,450; a tax rate of 15.4%. Some business people move off shore to secure a tax rate of 15% but as a Provate Landlord you don’t require a special structure to get this rate! If you are private landlord operating as a couple (spouses or business partners), profits would need to reach £82,900 before any higher rate of tax is payable.
So operating as and calling yourself a Private Landlord is the best way to proceed, the tax benefit is there and you can get a mortgage as a person much more easily than as a company.
If you have any other questions take a look at ourWhy work with Abode page where we have answered some other landlord queries.