Instead of carrying out those basic maintenance chores for nothing, landlords can pay someone else to file paperwork, clean communal areas, change lightbulbs and clip hedges.
The ideal employee is a teenager picking up pocket money without contributing to the business.
That pocket money is paid out of cash net of tax that the landlord has earned, but a simple tax break can plug that drain and make paying pocket money more tax effective for property people.
Flipping pocket money into a tax break is simple, but too few families with property know the rules and fail to take advantage of the tax saving.
The pocket money tax break must follow three simple rules –
• The teenager must be 16 or over and have a national insurance number
• The salary must reflect the level of work – so a 16 year old helper can’t pick up a £50,000 a year salary
• The teenager should open a bank account and the landlord should transfer the salary in leaving a clear electronic trail
Typically, the annual salary should not exceed the income tax personal allowance, which is £9,440 for the 2013-14 tax year. This means no tax or national insurance is due.
So how does this affect the landlord’s tax?
Paying the full £9,440 salary means landlords can pay family up to £181.50 a week – paying that out of taxed money with the landlord as a higher rate tax payer means the landlord would have to earn £13,216 to cover the payment as pocket money.
Paying the money as a salary means the landlord can set the £9,440 against rental profits as a business expense, which means a tax-saving of £3,776 as a higher rate taxpayer.
