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Introduction to this document

Property management company contract

Company tax rates are lower than those for individuals, so it might make sense to divert some of your rental income from properties you own personally into your own property management company. In order to avoid a challenge from HMRC, there should be a formal contract between you and the company.

Property management company

Whether to buy a property personally or through a limited company is a common question asked by property investors. Although companies currently have lower effective tax rates (say, 20%) than individuals (say, 40% or 45%), there could be a further tax charge when taking money out of the company as salary or dividends. However, by setting up a company to manage your property portfolio, you can take advantage of the lower company tax rates (as some or all of your rental profits will be diverted through the company).

The company would provide the usual letting agent services, such as finding new tenants, ongoing maintenance, repairs and property inspections and would charge you at a commercial rate for this service. Commercial letting agents usually charge around 10% - 15% of the gross rental income for a full management service. Therefore, if you rent out a property for £1,000 a month, then the company can charge you £150 a month (15% of £1,000) as a management fee. The company could also make separate charges for drawing up a tenancy agreement or taking an inventory. To rebuff any challenges of “this is a sham” from HMRC, you should have a written Property Management Company Contract in place. The contract should outline the management services that the company is providing to you and their related charges.