How a Real Estate Agent Calculates Taxes in the UK?

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How a Real Estate Agent Calculates Taxes in the UK?

Think you have good people skills? Do you enjoy the thrill of negotiation and deal-making? If so, a career as a real estate agent could be a great fit.

In the UK, the best real estate agents command six-figure salaries, including hefty commissions on every sale. Here’s a look at what it takes to become a real estate agent, the typical salary structure and a rundown of how you’d calculate your taxes.

How Do People Become Real Estate Agents in the UK?
Most real estate agencies in the UK offer on the job training, so a degree and previous experience aren’t essential. That said, competition is increasing. Which means that, when looking for opportunities, a qualification or background in the following subjects can give you an edge:

  • Business
  • Civil or structural engineering, surveying or urban studies
  • Estate management
  • Property development or management

What are real estate agents’ duties and responsibilities?

Your duties and responsibilities as a real estate agent will depend on which area of real estate you specialise in.

If you specialise in residential or commercial sales, your duties and responsibilities will include:

  • Collecting information about properties and arranging to take photographs
  • Estimating properties’ value
  • Marketing and promoting properties to prospective buyers
  • Helping prospective buyers decide what they’re looking for
  • Monitoring sales and liaising with mortgage brokers, solicitors, surveyors and other estate agents
  • Keeping up to date with market developments and trends

If you specialise in residential or commercial lettings, your duties and responsibilities will include:

  • Vetting prospective tenants by collecting references and doing credit checks
  • Making sure properties meet legal and health and safety requirements
  • Drawing up letting contracts
  • Acting as a property manager and resolving any property-related issues

What’s a real estate agent’s salary like?

A real estate agent’s salary consists of two parts: a basic salary and a commission. The salary is guaranteed, which means you’ll earn it irrespective of your performance. On the other hand, you’ll only earn a commission when you close a deal.

Salary amounts and commissions can vary a lot depending on your experience and track record. According to Payscale, the average real estate agent’s salary in the UK is anywhere between £12,528 and £35,488. This doesn’t include commissions, which can add up to as little as £1,468 and as much as £20,653.

Location can also make a big difference. In London, where the typical property prices are more than double the national average, you could earn up to £57,945 plus £50,684 in commissions a year. Yes, you read that right: that’s potentially £108,629 for a year’s work.

What is a real estate agent’s commission?

A commission is a fee you earn on every deal, whether it’s a sale or a letting. The fee is a percentage of the sale price or rent. It can be as little as 1 percent or as much as ten percent, depending on the agency.

Real estate agents don’t usually earn the full commission. This goes to the agency entrusted with selling or renting out the property.

Agencies calculate personal commissions based on one or more of the following factors:

  • Your personal sales or letting figures.
  • If you work in one of the agency’s branches, your branch’s sales or letting figures.
  • The state of the real estate market in your area.
  • Your experience. As a rule, the more experienced you are, the larger your commission. However, your basic salary will usually decrease as your personal commission increases.

The salaries on most real estate agent job postings include OTE (on-target earnings). This means the figure includes your basic salary plus the full amount of commission you’d earn if you meet your sales or letting targets for a full year.

Do real estate agents earn bonuses?

Yes. If you hit or exceed your sales targets, you’ll usually earn a bonus over and above your basic salary and commission. Targets can be monthly, quarterly or yearly. They help the agency track your activity, but they’re also an opportunity for you to earn more by closing more deals.

What are HMRC’s rules on real estate agent’s salaries, commissions and bonuses?

HMRC have rules on the way real estate agencies should calculate commissions and bonuses. They also have rules on when a real estate agency must pay you a salary, and when it can pay you entirely in commissions and bonuses. In particular:

  • Agencies have to base commissions and fees on a set of targets
  • The targets must be clear and measurable
  • If you’re employed, it’s illegal for an agency to pay you only in commissions and bonuses. You must also have a basic salary
  • If you’re self-employed, the agency can pay you only in commissions and bonuses

How do you calculate a real estate agent’s taxes?

Whether you’re employed or self-employed, real estate agents calculate their taxes the same way. However, if you’re an employee, your employer will deduct your taxes automatically each month via the PAYE system (pay as you go). In contrast, self-employed real estate agents have to calculate their own taxes and complete their own self assessment tax return.

How to calculate real estate agent taxes when you’re employed

Step 1: Tot up your basic salary as well as any commissions and bonuses. HMRC considers all three to be part of the pay for your job, so they’re all taxed the same way.

Step 2: Calculate how much tax you owe based on HMRC’s current tax bands. The first £11,500 is tax free, with the rest taxed progressively at 20 percent, 40 percent and 45 percent

Step 3: Calculate how much National Insurance you owe. As an employee, you pay Class 1 National Insurance on all your earnings — salary, commission and bonuses

Step 4: If you have a company car, HMRC considers it a benefit-in-kind. To calculate benefit-in-kind tax, find out the car’s P11D value, multiply it by the applicable company car tax rate and multiply again by your highest personal tax rate.

Calculating real estate agent taxes as an employee: Example

Let’s say you have a basic salary of £12,000 per year. In 2017 / 18 you earn £9,000 in commissions, but no bonus. This means your total gross income is £21,000 per year, or £1,750 per month.

You also have a company car. According to HMRC’s company car and car fuel benefit calculator, the car’s P11D value is £15,000. The car emits 50 grams of CO2 per kilometre.

HMRC’s 2017 / 18 tax bands are:

Income Applicable Tax Rate Percentage


BandTaxable IncomeTax Rate
Personal AllowanceUp to £11,0000%
Basic Rate£11,001 to £43,00020%
Higher Rate£43,001 to £150,00040%
Additional Rateover £150,00045%

So, you’d pay no taxes on your first £11,500 and 20 percent on the remaining £9,500. This works out at £1,900 for the year.

The current basic National Insurance contribution rates are:


IncomeApplicable NI Rate
£0 - £680 per month0%
£681 - £3,750 per month12%
Over £3750 per month2%

So, you’d pay zero percent National Insurance on the first £680 each month, and 12 percent on the remaining £1,070. This works out at £128.40 a month, or £1,540.80 a year.

To calculate benefit-in-kind tax, multiply £15,000 by 9 percent, which is the applicable company car tax rate for 2017 / 18. This means your company car’s taxable value is £1,350. Since the highest rate of tax you pay is 20 percent, you’d pay 20 percent of £1,350, or £270.

Your total tax bill for 2017 / 18 would be £3,710.

How to calculate your taxes as a self-employed real estate agent

Step 1: Tot up all your income for the tax year. If you’re self-employed, you probably earn commissions and bonuses but not a basic salary.

Step 2: Deduct your allowable expenses. These are expenses you made “wholly and exclusively” for business such as working from home, business insurance and business mileage (don’t forget to keep a mileage logbook)

Step 3: Calculate how much tax you owe based on HMRC’s current tax bands. The first £11,500 is tax free, with the rest taxed progressively at 20 percent, 40 percent and 45 percent

Step 4: Deduct Class 2 and Class 4 National Insurance. Class 2 National Insurance is £2.85 a week. You pay 9 percent Class 4 National Insurance on gross earnings over £8,164 and 2 percent on gross earnings over £45,000.

Do real estate agents pay estimated taxes in the UK?

Yes. You have to pay estimated taxes, called payments on account, if you’re self-employed and your last tax bill was more than £1,000. You have to make two payments on account, on the 31 January and on the 31 July. Each payment is equivalent to 50 percent of last year’s tax bill.

Example

In 2016/17, your total tax bill (income tax and national insurance) amounted to £4,000.

So, you have to make a £2,000 payment on account on 31 January 2018 and another payment on account of £2,000 on 31 July 2018.

Can I reduce my Payments on Account?

Yes. If you think you’ll be earning less this year, you can ask HMRC to reduce your payments by filling in Form SA303 or online. However, this isn’t a good idea unless you’re 100 percent certain you’ll be earning less. HMRC will charge interest if you underpay.

Andre Spiteri

André Spiteri is an expert fintech copywriter with a passion for making personal finance simple and accessible to everyone. Formerly a financial lawyer, he now helps fintech businesses establish their authority online and make more sales through the power of words. Head over to MaverickWords.com to learn more.

MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.

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