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My wife aged 62 is registered self employed and pays class 4 NIC. I am aged 68 and retire

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My wife aged 62 is registered self employed and pays class 4 NIC. I am aged 68 and retired with no earned income but my pension interest and dividend income takes me close to higher rate tax. We have income from jointly owned property managed by my wife which we split 50:50 after her fees have been deducted. Is it OK wife to increase her fees to benefit from her lower 20% tax rate? We are aware that the difference will only be about 3.5% because of the 9% NIC and 32.5% dividend rates.
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.

Thanks question and .
I am a little confused, if the property is owned jointly, then you wife cannot take fees the property (as its assumed as joint owners that you would undertake the management of the property automatically, and therefore, only fees paid to a third party such as a management agency are considered)
If the property was in your sole name then this would be permitted, so please expand.
Thanks
Sam
Customer: replied 2 years ago.
The properties are owned jointly 50:50 but the admin work of managing is done by my wife who also does admin on a self employed basis . We share profits 50:50 after deducting my wife's management fee on which she pays class 4 NIC.
Please advise which HMRC guidance disallows this.
Expert:  Sam replied 2 years ago.
Andrew
Thanks response
Its fine that she does this peoples properties but this cannot be permitted property (properties) you own jointly, as its already her income (half share) so she cannot pay "herself" when its just rental income as she cannot be part owner and then also benefit from being paid a fee within that income ownership! Its like a sole trader builder paying himself labour costs to undertake work on his own home !
Whilst this is listed in various forms within the property income and business income manuals - its tied up with the fact that you wife as an individual cannot be the landlord and a management fee charging business on the same property (so a creditor and debtor from the same income stream) - its tax evasion to suggest otherwise.
Its like saying you are paying her wages, which is not permitted in either rental or sole trader proprietors situations -
So its looks at what is allowable rather than this situation being a disallowed one -
But the simplest statement I can find within the PIM manual states
You can deduct wages as an allowable expense (which means any payment made such as fees or a wage) when paid to a member of your family who doesn’t own a share in the property but who undertakes property related tasks .
But then this means you CANNOT claim as allowable deductions any money paid to someone who DOES own a share in the property.
The tax regime has to have a separation, such as rental income and limited company, or trade income and limited company!!
You really do need to make a disclosure to HMRC of this factor, and get this put right - and in answer to your original question. Unless
1) You wife is not part owner of this (these) property (properties) OR
2) She puts in place the management work under a limited company from now on in, will any amount paid to her be considered an allowable deduction and all rents should be split 50:50 as things stand with no allowable element managing work she undertakes.
I know you are not going to be happy with my response, but I am sure you would appreciate the correct legal and expert position, (hence seeking expert advise) rather than me say what you want to hear, and its on this basis I ask you to consider when rating/accepting the answer.
Thanks
Sam
Sam, Accountant
Category: Tax
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