Special Purpose Vehicle (SPV) | Fusion Business Services

How does it work?

The buy-to-let mortgage would be in your own name when you invest in a property. However, when you purchase property through a SPV company, the mortgage will be taken out in the company’s name and not your own. This means that the SPV will effectively own the property instead of you. You can pay money into the SPV company to be used as a deposit to purchase properties, and a limited company buy-to-let mortgage can be used to pay for the rest of the cost of the property. You can hold multiple properties under one SPV company and quickly build your buy-to-let portfolio.

The advantages of using a Special-Purpose Vehicle Company

There are many benefits of using a SPV company to purchase properties to expand and manage your buy-to-let portfolio.

Standard buy-to-let properties are taxed as part of your personal income, which means capital gains tax is due on any rental income made from the property or properties. When you set up a SPV company, corporation tax is due instead. This could work out as a cheaper, more tax-efficient option for some investors as corporation tax is currently charged at 19% for the 2022/23 tax year.

You can use the same SPV company for all your buy-to-let properties allowing you to build a portfolio within one entity, reducing ongoing costs and admin.

No income tax is due on the retained profit within a SPV company, meaning you have more capital to re-invest and grow your buy-to-let portfolio.

You can reduce your potential income tax liability by leaving income in the SPV or taking out as much as required.

The SPV company operates as its own entity, which means there is an isolated financial risk.

Direct ownership of a specific asset.

Buy-to-let lenders who offer mortgages to corporate vehicles tend to prefer SPV companies to trading limited companies as they are quicker to underwrite and easier to understand.

If you purchase a buy-to-let property through an existing company, you will lose the benefit of closing the company down via a Members Voluntary Liquidation (MVL). However, if you purchase property through a SPV company, you can keep it as a separate entity from any existing company. You will not lose the benefit of closing the company down via an MVL and will be able to withdraw the retained profits tax-efficiently.

If you make a personal investment in the SPV company, you can withdraw your investment in the form of a director’s loan. Always seek the advice of a contractor accountant to help you make an informed decision, as director’s loans are often very complicated.

It is possible to claim mortgage interest as an expense through an SPV company. On top of mortgage interest, you can also claim tax relief on service charges and repairs.

The disadvantages of using a Special-Purpose Vehicle Company

There are also some disadvantages to consider before setting up a SPV company.

When a company sells a property, there is no Capital Gains Allowance, whereas when an individual sells a property, they can benefit from a £12,570 tax-free allowance (2022/23 tax year).

If you choose to draw all the rental profits as income, corporation tax will be applied at a rate of 19% – rising to 25% from April 2023 for companies with profits of £250,000 or more. The director will also be required to pay dividend tax at the basic rate of 8.75%, a higher rate of 33.75% or the additional rate of 39.35%.

If you want to sell existing properties to the SPV company, you may be liable to pay higher rate tax brackets, stamp duty land tax, legal costs and potentially capital gains tax.

SPV limited company buy-to-let mortgages can cost more than regular buy-to-let mortgages. This is because interest rates are often higher, and some lenders may need to charge more to cover the additional paperwork.

Not as many lenders offer SPV limited company buy-to-let mortgages, so you may find a reduced selection to choose from.

Some lenders may require a personal guarantee from the directors of the SPV company. If the mortgage is not fully re-paid, the directors and any shareholders may be liable for the debt.

Why is it advantageous to set up a Special-Purpose Vehicle Company before buying property?

If you purchase a property before setting up a SPV company, you must buy the property in your name and pay the applicable stamp duty. If you then set up a SPV company after you purchase a property, you would have to effectively sell the property to the SPV company and pay the required stamp duty again. Therefore, it is recommended that you set up a SPV company before purchasing a property to avoid paying stamp duty twice.

You need to set up a SPV company before the mortgage begins. However, there is no minimum amount of time your company has to be trading for before the mortgage starts. Applying for the mortgage before you set up the company is also possible. When you apply for a mortgage for the SPV company, you may receive better mortgage rates from lenders who favour SPV limited companies instead of trading limited companies. This is because they are easier to understand and often quicker to underwrite.

Build your property portfolio with Fusion Business Services

Investing in buy-to-let property is rapidly growing in popularity, and it can be an excellent way to boost your earnings. If you are interested in developing a property portfolio, look no further than Fusion Business Services. We are an expert landlord accountancy provider who works alongside leading cloud-based software providers (FreeAgent) to ensure you manage your business in the most productive way possible. Our SPV service includes the following:

Free SPV limited company set up.

Access to FreeAgent gives you 24/7 access and real-time information, including a tax timeline, expenses tracker and invoice tracker.

Full set of accounts prepared and submitted to HMRC.

All registration with HMRC is completed on your behalf.

Tailored tax planning and advice from your dedicated Account Manager.

Minimal ongoing administration.

Unlimited support via phone and email.

Company registration for PAYE is available upon request for an additional charge.

To schedule a free consultation or to discuss how Fusion Business Services can help you set up and assist you with the running of your SPV company, please call 0800 229 4020. Alternatively, please complete the short form on this page, and we’ll get back to you shortly.