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Author: Subject: Pension but income is "unearned" Can I set up a ltd company?
cliftyhanger

posted on 1/2/24 at 06:54 AM Reply With Quote
Pension but income is "unearned" Can I set up a ltd company?

I have a dilemma.
Most of my income is derived from being a landlord. Owned the places for 30 years.
I decided I REALLY need to get some money into a pension scheme, so have set up a SIPP.
The problem I have is I won't get the 20% uplift to my payments into the pension as rental income is deemed as unearned.

That is a PITA, as I spend a fair amount of time maintaining and running the places, despite having an agent who deal with the actual letting and collecting the rent.

So my question is, can I set up a limited company, which can then charge me to do the work. The company then pays the money into a directors pension.
I can deduct what I pay the company from my "unearned" income, and the company would pay no tax.

Is that "allowed"? Or am I being too hopeful? To be clear, I am not looking to put 100% of the rent into the company, but about £10k a year. So the company would be charging me out at about £50ph, which is what I would be paying the letting agents to get tradesmen in.





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Mr Whippy

posted on 1/2/24 at 08:51 AM Reply With Quote
I don't know anything about the tax stuff. But my parents own 3 large houses, two of which they long term rent and I know it's through my dads "company" and that's been their retirement fund for the last two decades. They make more money than me from the rent and spend most of their time in Spain or cruise ships. So what your suggesting is probably fine.





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Benzine

posted on 1/2/24 at 09:19 AM Reply With Quote
Yeah it's unearned which is fair. Why not just sell the houses?





The mental gymnastics a landlord will employ to justify immoral actions is clinically fascinating. Just because something is legal doesn't make it moral.


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cliftyhanger

posted on 1/2/24 at 09:47 AM Reply With Quote
quote:
Originally posted by Benzine
Yeah it's unearned which is fair. Why not just sell the houses?


1. The amount of CGT would mean any % return on the released money would be much lower. And would unlikely last long enough from now. I plan to start selling them in about 10 years time.

2. I would like to be able to put part of my income into a pension and get tax relief on it. It seems I am penalised because I obviosuly just sit on my arse all day and the money just flows in (as opposed to what actually happens, where I spend loads of time each year doing maintenance etc) Setting up a company to charge me for the work I do seems to be a way of making some of my income "earned"





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gremlin1234

posted on 1/2/24 at 10:14 AM Reply With Quote
I think it can be done, but you may have issues with 'national insurance' payments
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nick205

posted on 1/2/24 at 10:22 AM Reply With Quote
Much as it winds me up ('cos they charge), but it sounds like you need to seek the advice of an accountant/pension adviser to get the best setup for you.
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Mr Whippy

posted on 1/2/24 at 10:34 AM Reply With Quote
quote:
Originally posted by nick205
Much as it winds me up ('cos they charge), but it sounds like you need to seek the advice of an accountant/pension adviser to get the best setup for you.


Totally, I know my dad speaks to his regularly, although I'd check a pension adviser isn't bias and just wants your money. That's certainly been my experience and they always advise you to save with them but personally I've always considered it just a lazy way to invest. I've always believed at putting your money into property is a much better way (kicking off another house build this year expecting at least a 300% return).




[Edited on 1/2/24 by Mr Whippy]





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nick205

posted on 1/2/24 at 10:58 AM Reply With Quote
quote:
Originally posted by Mr Whippy
quote:
Originally posted by nick205
Much as it winds me up ('cos they charge), but it sounds like you need to seek the advice of an accountant/pension adviser to get the best setup for you.


Totally, I know my dad speaks to his regularly, although I'd check a pension adviser isn't bias and just wants your money. That's certainly been my experience and they always advise you to save with them but personally I've always considered it just a lazy way to invest. I've always believed at putting your money into property is a much better way (kicking off another house build this year expecting at least a 300% return).




[Edited on 1/2/24 by Mr Whippy]



Agreed - pension advisers can certainly be biased.

Agreed - returns from property are generally higher and more reliable (but often take a little more guts and effort to bring in).

For many though it is the slow and steady lifetime of pension saving that kicks in when the mortgage is finished!

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nick205

posted on 1/2/24 at 02:56 PM Reply With Quote
quote:
Originally posted by Benzine
Yeah it's unearned which is fair. Why not just sell the houses?



"cliftyhanger" has the ASSETS of the houses (probably increasing in value).

"cliftyhanger" is working fairly hard on maintenance to keep the houses in rentable condition (rules, regulations and costs no doubt).

"cliftyhanger" has the steady rental income from the houses and looking for a way to maximise income / minimise taxation (reasonable aim).

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cliftyhanger

posted on 1/2/24 at 05:03 PM Reply With Quote
quote:
Originally posted by nick205
quote:
Originally posted by Benzine
Yeah it's unearned which is fair. Why not just sell the houses?



"cliftyhanger" has the ASSETS of the houses (probably increasing in value).

Not so sure at the moment. So many landlords exiting the market as they are squeezed as most people think landlords are terrible people. So HMOs etc are not going to be easy to sell, unless "cheap" I guess they can be turned back to owner occupier places easily enough. Take out teh fire alarm panels, all the fire doors and fit prettier (but not as tough or easy to fix) kitchens/bathrooms/carpets etc

"cliftyhanger" is working fairly hard on maintenance to keep the houses in rentable condition (rules, regulations and costs no doubt).

I have spend 4hrs fixing a minor issue (but fiddly access) and teh tenants were happy to see me, had a chat, made me a cuppa and werer very pleasant about it all. I pay 8%+vat as a management fee, as all the rules/regs etc are a nightmare. Every 5 years £1000/house for a license. They take 2-4 years to do the inspection, then ask for a few upgrades, not all are statutory either.

"cliftyhanger" has the steady rental income from the houses and looking for a way to maximise income / minimise taxation (reasonable aim).

Thank you. Just like all sensible people. If I sell up now, I won't have enough as mid 50s, and I am unemployable after being "free range" for 20 years. So as said, another 10 years or so. But I would like to invest in a pension. Which only makes sense if my contributions are gross of tax. Otherwise I am better off with ISAs






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Benzine

posted on 1/2/24 at 05:48 PM Reply With Quote
quote:
Originally posted by cliftyhanger
It seems I am penalised because I obviosuly just sit on my arse all day and the money just flows in (as opposed to what actually happens, where I spend loads of time each year doing maintenance etc)


Perhaps things have changed in an attempt to address the housing crisis, that seems fair.

If you buy an austin 7 you'd expect there to be a lot of maintenance and work compared to a nissan leaf. Just because you spend a lot of time and money on maintenance doesn't mean it's the same situation for all landlords.


quote:
Originally posted by nick205
"cliftyhanger" has the ASSETS of the houses (probably increasing in value).

"cliftyhanger" is working fairly hard on maintenance to keep the houses in rentable condition (rules, regulations and costs no doubt).

"cliftyhanger" has the steady rental income from the houses and looking for a way to maximise income / minimise taxation (reasonable aim).


How does the situation look from the tenant's perspective?





The mental gymnastics a landlord will employ to justify immoral actions is clinically fascinating. Just because something is legal doesn't make it moral.


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cliftyhanger

posted on 1/2/24 at 07:38 PM Reply With Quote
quote:
Originally posted by Benzine


How does the situation look from the tenant's perspective?


My tenats are usually happy. Not the case with some other landlords, but the truely awful ones are the big corporate landlords. Nobody has accountability, wheras small private landlords tend to get stuff sorted quickly.
There are some awful landlords too, many flouting the law.

The current changes in legislation will see an awful lot of good landlords give up, and probably more scummy "below the radar" ones popping up and cutting every corner possible. And rents will go up as rentals get harder to find. History teaches that impsing more regulation etc on landlords does not help tenants. But that isn't what many want to hear.





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coyoteboy

posted on 2/2/24 at 10:35 AM Reply With Quote
@Benzine you have a clear overly large chip on that shoulder.

Our society has many ways of making income, one way is to risk a shedload of personal investment and maintenance time to recover some profit to live off. As opposed to just ploughing hours into some other company's profits. From a tenants perspective, I don't think they give two hoots about whether he makes a pension off his earnings or not, they're probably just happy that he's an attentive landlord and keeps their house nice for them.

I love the housing crisis that apparently exists, while around me there's dozens of un-sold newbuilds having their prices slashed to nearly the same as I paid 10 years ago for 1930s semi, and still not selling for more than a year. I'm not in a position to argue the country as a whole, but I'd say around here there's more of a problem with people earning enough to buy *anything* let alone a house, and even if they were all dropped from rental stock tomorrow the average prices wouldn't drop so it's an daft argument. I love how everyone vilifies landlords, but when you want to rent somewhere short term while life circumstances change (As I am currently) the complete lack of local rentals and the huge availability of purchase options is really not helpful.

I'm considering renting my house out as I need to move to another location but I want the security of having it. The problem is rent doesn't even come close to covering costs currently, in an area with an average rental of about 1500pcm and fees being about 10-15%, mortgage, safety inspections etc after tax I'd be left with about 200 a month for the fun of having the risks of boiler failure etc. If I factor in repairs/insurance to cover repairs I'd be about breaking even. Only people who bought in 1950 are reaping huge profits these days. Selling it and investing the cash would yield me even less return.



[Edited on 2/2/2024 by coyoteboy]






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Benzine

posted on 2/2/24 at 12:20 PM Reply With Quote
quote:
Originally posted by coyoteboy
@Benzine you have a clear overly large chip on that shoulder.



No need for ad hominem. I agree that income from rental property is classed as unearned. Why does that mean I have an 'overly large chip on that shoulder'?

Likewise, the point I made about hours put into maintenance and my analogy with cars. What's wrong with that? I rented for 15 years and most of the landlords didn't have to spend anything extra. Literally zero maintenance. One garage door spring. They weren't new properties, they were nothing special.

The point I made about the tenants POV has been answered very interestingly. I.e. my tenants are happy etc. I was interested in their point of view of pouring their money into a pit and having nothing to show for it, the fear of being turfed out at a month's notice and being stuck paying more in rent than a mortgage would cost.





The mental gymnastics a landlord will employ to justify immoral actions is clinically fascinating. Just because something is legal doesn't make it moral.


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coyoteboy

posted on 2/2/24 at 12:35 PM Reply With Quote
With respect though, your points are irrelevant to the question, and clearly entirely based on personally not liking landlords as an entity. No one argued that it was earned, just mentioned that it isn't quite the same as interest on a bank account.

He asked how to organise a business to minimise his taxes as maximise his pension. You asked how his customers feel and gave examples of why you think he's a leech for renting his property to people who want to rent it.


How your history of renting went isn't really important as to how he should organise a business. Mine neither, for my rent the landlord looked after the gardens, repainted garden furniture ans had a few plumbers trips, painted the whole house once and leant me car tools in 2 years. Previously I had cheaper rent and I had to garden. So what?

[Edited on 2/2/2024 by coyoteboy]






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Benzine

posted on 2/2/24 at 12:45 PM Reply With Quote
quote:
Originally posted by coyoteboy
With respect though, your points are irrelevant to the question


So was your last post then!





The mental gymnastics a landlord will employ to justify immoral actions is clinically fascinating. Just because something is legal doesn't make it moral.


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coyoteboy

posted on 2/2/24 at 02:18 PM Reply With Quote
quote:
Originally posted by Benzine
quote:
Originally posted by coyoteboy
With respect though, your points are irrelevant to the question


So was your last post then!


Absolutely, I was just calling out the poor behaviour that was trying repeatedly to make someone feel guilty while pretending not to be 😁 Now let's hush and let the adults talk about tax.






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cliftyhanger

posted on 2/2/24 at 05:18 PM Reply With Quote
I don't feel guilty about being a landlord. I provide a service to groups of (usually) students. And I make sure they have a decent safe place to live. I have always used the "would I be happy for my kids to live here" ethos.
The rents I get are set by the agency, who again treat their tenants with respect. Much better than the larger ones.
And all my places were let out before christmas for the new academic year in September. I have a grouop who have stayed 2 years already, and are staying for the 3rd year. Another place they are staying for another year, and have said they wish they had lived there in their first year. This is not uncommon with my tenants.
Broadening the discussion, with my student lettings, the current tenants always get asked if they want to renew before the place is advertised. If they don't renew, they are issued with a Section 21 notive around easter time, so about 4 months notice. Never had a complaint about that. Because they know it was a 51 week contract from the outset.
With the renters reform bill, if a section 21 notice cannot be issued, then the house cannot be advertised until the current tenants give notice.
Sounds good from a tenants perspective. But what about the new cohort of students who are arriving? they will have no idea if they will be able to find accomodation.
Interestingly, the PBS (purpose built student accomodation) providers WILL be able to kick students out at the end of a fixed tenancy. Again, sounds good, but in Brighton PBS accomocdation starts at £700pm and goes up to £1k or a little more for teh nice places. Which is still a studio room with ensuite, but all bills included. Student houses are much cheaper, about £550pm is the going rate for a room in a shared house.
Makes me wonder if the companies spending millions on PBS are pushing to get rid of traditional student shared houses?
Anyway, todays jobs were fixing a tumble drier, where the drim spindle had eaten its way through the bearing, and had started slicing through the case (new bearing and spindle fitted, machine completely de-fluffed) and replace the shower extractor fan where the timer chip had popped. They seem to last 3-5 years. I am amazed Benzine never needed that sort of maintenance carried out. But a shared student house tends to be hard on appliances, carpets, decor and plumbing.

Looks like I will be setting up a ltd company. 2 choices, the simple one is to do the maintenance on our places. If I want to be more extreme, I could set up a "rent to rent" company. So teh ltd company would rent all our places from us for (say) half market rent. The company would then rent out via the agency making healthy mark up (don't worry, rents would be the same for tenants) The company would then make all payments into my pension. The first option seems most likely.





555

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ravingfool

posted on 3/2/24 at 12:29 AM Reply With Quote
quote:
Originally posted by cliftyhanger
I don't feel guilty about being a landlord. I provide a service to groups of (usually) students. And I make sure they have a decent safe place to live. I have always used the "would I be happy for my kids to live here" ethos.
The rents I get are set by the agency, who again treat their tenants with respect. Much better than the larger ones.
And all my places were let out before christmas for the new academic year in September. I have a grouop who have stayed 2 years already, and are staying for the 3rd year. Another place they are staying for another year, and have said they wish they had lived there in their first year. This is not uncommon with my tenants.
Broadening the discussion, with my student lettings, the current tenants always get asked if they want to renew before the place is advertised. If they don't renew, they are issued with a Section 21 notive around easter time, so about 4 months notice. Never had a complaint about that. Because they know it was a 51 week contract from the outset.
With the renters reform bill, if a section 21 notice cannot be issued, then the house cannot be advertised until the current tenants give notice.
Sounds good from a tenants perspective. But what about the new cohort of students who are arriving? they will have no idea if they will be able to find accomodation.
Interestingly, the PBS (purpose built student accomodation) providers WILL be able to kick students out at the end of a fixed tenancy. Again, sounds good, but in Brighton PBS accomocdation starts at £700pm and goes up to £1k or a little more for teh nice places. Which is still a studio room with ensuite, but all bills included. Student houses are much cheaper, about £550pm is the going rate for a room in a shared house.
Makes me wonder if the companies spending millions on PBS are pushing to get rid of traditional student shared houses?
Anyway, todays jobs were fixing a tumble drier, where the drim spindle had eaten its way through the bearing, and had started slicing through the case (new bearing and spindle fitted, machine completely de-fluffed) and replace the shower extractor fan where the timer chip had popped. They seem to last 3-5 years. I am amazed Benzine never needed that sort of maintenance carried out. But a shared student house tends to be hard on appliances, carpets, decor and plumbing.

Looks like I will be setting up a ltd company. 2 choices, the simple one is to do the maintenance on our places. If I want to be more extreme, I could set up a "rent to rent" company. So teh ltd company would rent all our places from us for (say) half market rent. The company would then rent out via the agency making healthy mark up (don't worry, rents would be the same for tenants) The company would then make all payments into my pension. The first option seems most likely.



Don't like the 'rent to rent' idea. Sounds like a contrivance with no business purpose other than to reduce tax liability and therefore would be tax evasion thanks to anti avoidance regulations.

Lots of ideas online are arguably not 'good ideas'. Take advice from a reputable and appropriately qualified professional unless you have access to appropriate professional resources and the ability to consider and advise yourself.

Depending on wider circumstances there can be some really good tax saving methods but equally you need to be careful not to tie yourself up in knots chasing relatively minor savings after taking into account what might be the costs of implementation.





555

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russbost

posted on 6/2/24 at 11:24 AM Reply With Quote
@Clifftyhangar I am similarly a landlord & also resent the vilification that comes with it - unlike yourself most of our properties are residential lets, hence unfurnished - we supply as little white goods as possible as they attract PATS testing costs, tenants abuse them & they require far more frequent replacement than my own (correctly looked after) white goods ever do. If a tenant leaves white goods in the property when they leave, we offer it free of charge to the new tenant on the condition it is theirs & they are responsible for ownership/maintenance - if they don't want it we are such horrible people we give it away on Freagle, Facebook etc - charities rarely seem to want electrical goods

We have an agent look after all the main day to day running of the properties & a few good maintenance guys that deal with that side of things, I'm 67 & try to never get involved, I have no particular wish to meet tenants in person or have any relationship with them, that's the agents job, they charge us 6% +Vat as we have multiple properties

Surely you must already have an accountant dealing with the properties for you? If not I would very highly recommend you get someone professional involved ASAP, I pay my accountant around £700 a year, he deals with HMRC & all our paperwork, which we precis for him. I'm quite sure he has saved me vastly more than he's cost over the years as he knows of any loopholes, advantages & anything that HMRC will allow as genuine claims to reduce tax, to say nothing of the peace of mind it gives to know a professional is dealing with it for you.

I do have a small personal pension which I took when I was 50 & immediately added the (pitifully small) 20% capital allowance to our property portfolio & did the same with my wife's even smaller personal pension which she wasn't allowed to take until 55 (new rules). During the time we've been taking our personal pensions the growth of the pension pot has been pitiful, nevertheless I've intentionally been drawing out at a much higher rate then the GAD limit suggests as otherwise , even with only around 3% growth of the pot it was going to take until my late 80's to draw the whole pension down! Funnily enough, I don't think I'll be spending as much when I'm that age, even if I'm still alive - & who knows when that nice chap carrying the scythe might turn up?

At present I can earn more money by investing in a decent immediate access account (5%! Though of course I still get taxed on that) than I can earn by investing in property & with zero risk & effort. By the time you've had all the additional expenses with EICR's, EPC's, general maintenance, boiler inspections, capital gains, stamp duty, 3% landlord tax on any additional purchase & not all costs allowed against expenditure as you'd have with most businesses due to it being treated as "unearned income" your likely return on any current investment even if made with cash are likely to be in the region of 4% (higher with student/HMO's etc. but with much more hands on involvement & hassle}. The recent changes to mortgage interest costs no longer being allowed are quite ridiculous, you're being taxed on money you've never had! Any landlords with significant mortgage exposure have been completely shafted, no wonder rents have gone through the roof

Unfortunately with the Capital gains situation you get trapped into keeping the properties you have as if you sell one, you're going to pay 18 or 28% (28 if you're a higher rate tax payer & even if you weren't by the time you add any sizeable capital gain to your earnings tou will be!)

The Government & people like Shelter seem to have a particular "down" on private landlords & yet if you look at the facts, it is nearly always Council housing & social housing that has the high rates of dissatisfaction & problems with black mould/rising damp etc The no. of rogue landlords around is tiny, unlike the 60/70's when, yes, I would agree there were some proper scumbags in control of some properties.

Sorry didn';t mean to turn this into a rant - I hope there's something useful you can pick out of it!

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cliftyhanger

posted on 6/2/24 at 12:53 PM Reply With Quote
I agree with that!

As to electrical stuff, I have been PAT testing for years, did the course when the agets we use struggled to get people to do it. I do about 4 full days a year, approx 30 properties, plus my own and extended family rentals.
I do my own EICRs too, having done some electrical courses.

Accountant, the lady wife is a management accountant, and after 30 years of looking after our tax returns is VERY clued up. However, the one thing we never thought about is pensions. They can be very tax efficient. Especially in a year when we intend to sell a property and we really do not want any income at all to maximise the 18% CGT allowance. That may be tricky....

But we are still fact finding re ltd companies.

And yes, you are spot on. 90% of private landlords are great compared to social landlords. And the 10% of poor private landlords are unaffected by increasing legislation as they ignore it.

Todays job is welding up a metal bedframe. I am working my way through the beds as the start getting wobbly. Saving the planet by repairing (and making much stronger) the existing otherwise perfect beds. Goodness knows what happens to them......





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Mr Whippy

posted on 6/2/24 at 02:53 PM Reply With Quote
Oh the joys. Due to my folks age I have to look after the houses they rent and now have four roofs to fix thanks to the storms ripping off the ridges fortunately I have found a van with a cherry picker on it to hire (I've never used one before, looks high and bouncy). Then tenants also opened an upstairs window and the bottom fell out along with the glass amazingly it didn't smash (ps. don't buy wooden windows). Plus two fence panels exploded in the wind... yeah it never ends.

Our last tenant's kept two tortoises, although we don't usually allow pets we thought what the hell, what can a tortoise do?? well actually they make a huge bloody mess that's what! they play in their dirt boxes flicking it into the air and the dark dirt goes absolutely everywhere! I made them bring in professional cleaners to go over the house before signing it off.





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