As a property investor or landlord, should you have a separate business account for rental income and property outgoings?

Of course, if you’ve incorporated your property investment business as a limited company entity, the limited company needs its own bank account by law.

This is because the company exists as its own entity, and while the company may belong to you as a director, your bank account doesn’t belong to the company.

As for sole trader property investors, there’s no strict requirement to set up a separate bank account – but should you do it anyway?

The short answer is yes; and here’s why.

It makes managing your money easier

When your rental income, outgoings and expenses are mixed up with personal transactions in the same account, even just making sense of your finances is a lot more time-consuming.

Without a clear picture of your investment finances, measuring performance and planning your next steps becomes next to impossible; and annual tax return bookkeeping means sifting through every single bank statement to find the relevant transactions.

Having a separate account keeps everything simple. You’ll have all your property investment transactions in one place; and when it’s time to fill in your tax return, you can just submit your records in one go without any manual combing.

Plus, if you rely on a property tax accountant and you’re paying them by the hour, more streamlined accounts means less work for them and a cheaper service bill for you.

It keeps HMRC happy

Generally speaking, the taxman doesn’t like ‘commingling’ – the mixing of business funds and personal funds. 

Doing so could increase your chances of triggering a HMRC enquiry[link to https://www.gnsassociates.co.uk/how-landlords-can-avoid-hmrc-tax-enquiry/] into your finances; and naturally, if your accounts are in a disorganised state due to commingling, you might have a tougher job convincing them that your records are correct and legitimate.

You won’t have this problem if you use a separate account for your property finances. Plus, in the unlikely event that you’re still selected at random for a tax investigation, you’ll have the organised records to fight your case; which means you can avoid hefty financial penalties.

It protects your business assets from personal debt (and vice versa)

There’s another risk when it comes to HMRC enquiries. If they suspect you’re up to no good, they have the power to freeze your account. (Banks can also do this if they suspect foul play, or if you’ve defaulted on any debt repayments.)

So if your business runs into financial and/or tax difficulties, and your account gets frozen… what happens to your personal funds?

Well, if those funds are in the same account as your business funds, they’ll be frozen too. You won’t be able to extract the personal funds from a frozen account, even if they have nothing to do with the troubles your business is facing.

It works the other way, too. If your own personal finance issues leave your account froze, you could find yourself locked out of your business funds too.

This is yet another reason to keep separate accounts for your property investment business and your personal money. Depending on the situation, the money in one account will generally be shielded from any financial troubles in the other.

Keeping separate accounts also enables you to build up a good credit score for your property investment business, regardless of the credit score of your personal accounts.

And unless you have the deep pockets to pay in cash, maintaining that good business credit score is almost essential for securing mortgage financing and growing your portfolio.

You might end up with a lower tax bill

When business and personal transactions are all mixed up in the same account, it’s also far easier to accidentally miss business outgoings which can be claimed as expenses.

Remember, your tax bill is calculated after expenses; so if you’re not claiming every expense that you’re entitled to, you’re paying more tax on your property investment activities than you need to.

With a separate account, you’re far less likely to miss allowable expenses and keep your tax bill as low as it can be.

How many business accounts should you have for your property investments?

It really depends on the scale of your business and your level of organisation.

For most property investors, a single account is more than enough to manage a small portfolio. For larger portfolios, it may be advantageous to have a separate account for each individual property; but you’ll need to pay close attention to your accounts to ensure you don’t accidentally use the wrong account for the wrong property.

At GNS Associates, our specialist landlord tax accountants in Uxbridge can help with every aspect of setting up your property investment business account, as well as providing bookkeeping and tax advice to keep your property business running smoothly.

Arrange your consultation today – call us on 0208 090 2604 or email: info@gnsassociates.co.uk.