Running a property business through a limited company is often sold as the “tax-efficient” option.
And in many cases, it is.
But here’s the uncomfortable truth we see every week:
Many property directors have limited companies… but no clear plan for how they should actually pay themselves.
They take money when they need it.
They stop when the bank balance looks low.
They rely on dividends without understanding what profits really mean.
And then, months or years later, they’re hit with:
- An unexpected tax bill
- A director’s loan account problem
- Cashflow pressure
- Or a mortgage lender asking awkward questions
This blog explains how director pay really works for property limited companies, why salary vs dividends is not a one-size-fits-all answer, and how to design a strategy that supports both your tax position and your long-term property goals.
Why Property Companies Are Different
Let’s start with the biggest misunderstanding.
Property limited companies do not behave like trading companies.
A builder, consultant, or agency earns income and spends money in roughly the same period.
A property company doesn’t.
Property businesses have:
- Mortgage interest and capital repayments
- Long gaps between costs and income
- Retained profits sitting in the company
- Refinancing cycles
- Repairs and improvements that don’t always show immediately in profit
This means that the way you pay yourself must be planned, not improvised.
What looks affordable on paper can quietly damage cashflow — and what looks tax-efficient can cause problems later.
The Two Main Ways Directors Pay Themselves
As a director of a limited company, there are two common methods of personal income:
- Salary (via PAYE)
- Dividends (from company profits)
Most property directors use a combination — but the balance matters more than most people realise.
Option 1: Salary – Predictable, But Not Always Efficient
A director’s salary is paid through payroll, just like an employee.
The Pros
- Regular, predictable income
- Counts as earned income (useful for mortgages and pensions)
- Corporation tax relief for the company
- Helps maintain National Insurance records
The Cons
- Income tax and National Insurance can add up
- Employer’s NI becomes expensive at higher levels
- Less flexible than dividends
For many property directors, a small, controlled salary makes sense — often set around thresholds to maximise tax efficiency without triggering unnecessary NI.
But problems arise when:
- Salary is set too high “just because it’s easier”
- No consideration is given to company cashflow
- PAYE liabilities build up unnoticed
Salary should be intentional, not automatic.
Option 2: Dividends – Popular, But Commonly Misunderstood
Dividends are paid from post-tax profits.
This is where many property directors go wrong.
Dividends Are NOT:
- A replacement for wages
- Guaranteed
- Tax-free
- Available just because there’s money in the bank
Dividends ARE:
- A distribution of accumulated profits
- Dependent on accurate accounts
- Taxable personally
- Linked to director loan positions
Property companies often have profits on paper but restricted cash, especially where mortgages and capital repayments are involved.
Taking dividends without understanding this is one of the biggest causes of future problems.
The Silent Risk: Taking Money Without a Strategy
We regularly meet property directors who say:
“I didn’t realise that would cause a problem.”
Common scenarios include:
- Dividends declared without enough retained profit
- Money taken that should have been salary
- Overdrawn director’s loan accounts
- Personal tax bills with no cash set aside
The issue isn’t that dividends are bad.
The issue is that dividends taken blindly are dangerous.
Director’s Loan Accounts: Where Salary & Dividends Collide
In property companies, director’s loan accounts (DLAs) are almost unavoidable.
You might:
- Fund deposits personally
- Pay costs out of your own account
- Take money back later
That’s fine — when it’s tracked and planned.
But problems arise when:
- Dividends are taken without checking the loan balance
- Personal withdrawals exceed salary and dividends
- No one reviews the DLA position during the year
An overdrawn director’s loan account can trigger:
- Section 455 tax
- Benefit-in-kind charges
- HMRC scrutiny
- Repayment pressure at the worst possible time
Your pay strategy and your loan account must work together.
Why “Low Salary + Dividends” Isn’t Always the Answer
You’ll often hear:
“Just take a small salary and dividends — that’s the most tax-efficient.”
Sometimes that’s true.
But for property companies, this advice is often too simplistic.
Things 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’ve seen directors minimise salary to save tax… only to struggle with:
- Mortgage applications
- Pension contributions
- Personal cashflow planning
Tax efficiency should never come at the cost of financial stability.
Why Annual Accounts Are Too Late
One of the biggest frustrations we hear from property directors is:
“I only find this out when the accounts are done.”
By then:
- Dividends have already been taken
- Cash has already gone
- Tax bills are already locked in
This is why property companies need ongoing review, not once-a-year reporting.
Good director pay planning happens:
- During the year
- Before dividends are taken
- Before tax thresholds are crossed
What a Proper Director Pay Strategy Looks Like
A strong strategy for a property limited company includes:
1. A Planned Salary Level
Not random. Not historic.
Designed around thresholds, cashflow, and personal needs.
2. Dividend Planning
Based on:
- Real profits (not guesses)
- Loan account position
- Future tax liabilities
3. Regular Reviews
So decisions are made before, not after, the damage is done.
4. Cashflow Awareness
Understanding what money is actually available — not just what the accounts say.
The Cost of Getting It Wrong
When director pay isn’t planned properly, we commonly see:
- Surprise personal tax bills
- Section 455 tax on loan accounts
- Cash shortages before tax deadlines
- Stress and uncertainty
- HMRC letters that could have been avoided
None of this means you’ve failed as a director.
It means you were never shown how it really works.
Final Thought: Property Directors Deserve Better Advice
Running a property company is already complex.
Your accountant should be simplifying decisions — not explaining problems after they’ve happened.
Salary vs dividends isn’t a tick-box choice.
It’s part of a wider strategy that protects:
- Your company
- Your personal position
- Your future plans
If you’re unsure whether your current setup is right, that uncertainty alone is a sign it’s time for a proper review.