By Hammond & Co
Running a property business through a limited company is often promoted as the “tax-efficient” route — and in many situations, it is.
But there’s an uncomfortable truth we see regularly:
Many property company directors have the structure in place…
yet no clear plan for how they should actually pay themselves.
Money is taken when it’s needed.
Withdrawals stop when the bank balance dips.
Dividends are relied upon without fully understanding what “profit” really means.
Then months — sometimes years — later they are faced with:
- Unexpected tax bills
- Director’s loan account issues
- Cashflow pressure
- Mortgage lenders asking difficult questions
This guide explains how director pay really works in property limited companies, why salary versus dividends is not a one-size-fits-all decision, and how to build a strategy that supports both tax efficiency and long-term property goals.
Why Property Companies Are Different
One of the biggest misconceptions is assuming a property company operates like a normal trading business.
A builder, consultant, or agency typically earns income and incurs costs within the same period.
A property company often doesn’t.
Property businesses commonly deal with:
- Mortgage interest and capital repayments
- Long gaps between income and expenditure
- Retained profits sitting in the company
- Refinancing cycles
- Repairs and improvements that don’t immediately appear in profit figures
This creates a disconnect between paper profit and available cash.
What looks affordable in the accounts can quietly strain cashflow, and what looks tax-efficient today can create complications later.
Director pay needs planning — not improvisation.
The Two Main Ways Directors Pay Themselves
For limited company directors, personal income usually comes from two sources:
- Salary (via PAYE)
- Dividends (from company profits)
Most property directors use a blend of both — but the balance is more important than many realise.
Option 1: Salary — Predictable, But Not Always Efficient
A director’s salary is processed through payroll like any other employee wage.
The Advantages
- Regular and predictable income
- Counts as earned income (useful for mortgages and pensions)
- Corporation tax relief for the company
- Maintains National Insurance records
The Drawbacks
- Income Tax and National Insurance can accumulate quickly
- Employer’s NI becomes costly at higher levels
- Less flexibility than dividends
For many property directors, a small, controlled salary makes sense — often set around key thresholds to preserve efficiency without triggering unnecessary NI.
Problems arise when:
- Salary is set high simply “because it’s easier”
- Company cashflow isn’t considered
- PAYE liabilities build unnoticed
Salary should be intentional — not automatic.
Option 2: Dividends — Popular, But Often Misunderstood
Dividends are payments made from post-tax profits.
This is where many property directors run into difficulty.
Dividends Are Not:
- A substitute for wages
- Guaranteed
- Tax-free
- Available just because there is cash in the bank
Dividends Are:
- A distribution of accumulated profits
- Dependent on accurate accounts
- Personally taxable
- Linked to director’s loan account positions
Property companies frequently show profits on paper while cash remains tied up in mortgages, deposits, or refurbishments.
Taking dividends without understanding this distinction is one of the most common causes of financial strain.
The Silent Risk: Taking Money Without a Strategy
We often hear, “I didn’t realise that would cause a problem.”
Common scenarios include:
- Dividends declared without sufficient retained profit
- Money taken that should have been salary
- Overdrawn director’s loan accounts
- Personal tax bills with no cash set aside
Dividends themselves aren’t the issue.
Dividends taken without planning are.
Director’s Loan Accounts: Where Salary and Dividends Collide
In property companies, director’s loan accounts (DLAs) are common.
You might:
- Fund deposits personally
- Pay expenses from your own account
- Withdraw funds later
That’s perfectly acceptable — when it’s tracked and managed.
Problems arise when:
- Dividends are taken without checking the loan balance
- Personal withdrawals exceed declared income
- The DLA position isn’t reviewed during the year
An overdrawn director’s loan account can lead to:
- Additional corporation tax charges
- Benefit-in-kind implications
- Increased HMRC attention
- Repayment pressure at the worst possible time
Your pay strategy and loan account must work together — not against each other.
Why “Low Salary + Dividends” Isn’t Always the Answer
You’ll often hear the phrase:
“Just take a small salary and dividends — that’s the most tax-efficient option.”
Sometimes it is.
But for property companies, this advice can be overly simplistic.
Factors that should influence your decision include:
- Mortgage lender requirements
- Planned refinancing
- Personal income needs
- Other income sources
- Future property purchases
- Retained profit strategy
- Risk exposure
We regularly see directors minimise salary to save tax, only to struggle later with:
- Mortgage applications
- Pension contributions
- Personal cashflow planning
Tax efficiency should never come at the expense of financial stability.
Why Annual Accounts Are Too Late
A common frustration among property directors is:
“I only find this out once the accounts are done.”
By that stage:
- Dividends have already been taken
- Cash has already left the business
- Tax positions are largely fixed
Property companies benefit far more from ongoing review rather than once-a-year reporting.
Effective director pay planning happens:
- During the year
- Before dividends are declared
- Before thresholds are crossed
What a Proper Director Pay Strategy Looks Like
A strong approach for a property limited company typically includes:
1. A Planned Salary Level
Designed around thresholds, cashflow, and personal needs — not historic habit.
2. Dividend Planning
Based on:
- Real profits
- Director’s loan account position
- Future tax liabilities
3. Regular Reviews
So decisions are proactive rather than reactive.
4. Cashflow Awareness
Understanding what money is truly available — not just what the accounts suggest.
The Cost of Getting It Wrong
When director pay isn’t structured properly, we commonly see:
- Surprise personal tax bills
- Additional tax on overdrawn loan accounts
- Cash shortages before tax deadlines
- Stress and uncertainty
- Avoidable HMRC correspondence
None of this means you’ve failed as a director.
More often, it means the system was never clearly explained.
Final Thought: Property Directors Deserve Better Advice
Running a property company is already complex.
Your accountant’s role should be to simplify decisions — not explain problems after they occur.
Salary versus dividends is not a tick-box choice.
It’s part of a broader financial strategy that protects:
- Your company
- Your personal finances
- Your future property plans
If you’re unsure whether your current structure is right, that uncertainty alone is usually a sign it’s time for a proper review — before small inefficiencies turn into expensive ones.