A Guide to SPV Limited Companies
An SPV, or Special Purpose Vehicle, is usually a limited company that is created as a ‘wrapper’ for property investments.
With over 40% of new buy to let mortgage applications coming from an SPV our guide takes a deep dive into these Special Purpose Vehicles and how they work.
Most property investors will have encountered the terms SPV Company or SPV buy to let over the last few years. Since the Section 24 legislation came into force landlords have only been able to claim a reduced amount of mortgage interest relief, rather than the full amount available pre-legislation.
This reduced the profitability of buy to let and since then the use of a limited company for property investment has been steadily increasing. Our guide takes a comprehensive look at what an SPV Company is and why they are used for buy to let.
What is an SPV Limited Company?
An SPV, or Special Purpose Vehicle, is a legal entity that has been created for a limited or narrowly defined purpose.
In the context of property investment an SPV tends to be a private limited company that is used to purchase and own residential or commercial properties. Property developers often use an SPV structure for each development project, a new company being set up to ‘own’ each new project.
The Company will have its own assets and liabilities which will be ring-fenced from other assets held elsewhere. It therefore provides a degree of personal financial protection should a project not perform as expected.
While most property related SPV’s are private limited companies they could also be a Limited Liability Partnership (LLP), Public Limited Company (Plc) or other business types. A property SPV is not a trading business and so cannot derive any income from other business activities.
HOW DOES IT WORK?
In the context of property investment an SPV Company means that:
- Properties are owned by the Company
- Mortgages are taken out by the Company
- Rental income gets paid to the Company
- All business expenses can be offset against income
- Shareholders will own the Company
- Directors will run and operate the Company
- There is no limit on the number of properties owned
As the Special Purpose Vehicle is a Company, registered at Companies House, you will need to adhere to the requirements for annual returns and formalised accounts.
Why would you need an SPV Company?
The benefits of holding properties within a company are wide-ranging. Some people do it to save tax, while others want to create a legacy for their family.
Here’s a few more reasons:
You might benefit from an SPV if you are a higher-rate taxpayer owning one or more properties. The overall tax burden is lower with this ownership structure and importantly (for tax reasons), the property income is not yours, it gets paid to the company.
It allows for a group of people to own an investment, perhaps as a Joint Venture (JV). The Company can be set up with multiple shareholders, all with a different level of ownership, reflecting their financial input or expertise.
The structure will legally separate the SPV assets from any owned personally (family home etc).
If you own a lot of properties you may find that having them all under one Company simplifies the admin and accounting burden.
Why are SPVs so popular?
Prior to the Section 24 legislation it was relatively rare for a buy to let landlord to own properties within an SPV structure. Property developers have done this for many years but holding residential property in a company for the long term was uncommon.
The tax changes forced property investors to reassess their position and this included how best to buy and hold property.
According to lender West One there are around 2.7m landlords in the UK and 29% of these have at least one property held in a ltd. company.
The main driver towards Special Purpose Vehicles has definitely been so that landlords can improve their financial position by mitigating some of the punitive changes imposed by Section 24. Lenders have stated that more than 40% of their buy to let mortgage applications are currently from limited companies.
As investors explore their options in more detail there are a number of other advantages surfacing:
- You can use accrued monies as a deposit to fund further property acquisitions without having to pay yourself this money and then pay tax on it.
- Owners are able to inject capital into the company as a Directors Loan and then withdraw this tax-free, as and when cash flow allows.
- It will simplify your own personal tax returns (self assessment).
- It can help with inheritance planning.
Experienced property investors who have built up a mixed portfolio of commercial, residential, HMO and MUFB will often prefer to hold these within a Company.
Should you have one?
Surely everyone needs an SPV as all of these benefits seem too good to be true?
Holding property within a company can be very beneficial for multiple reasons. But it is not suitable for everyone.
As a start we recommend you discuss the idea with an experienced SPV mortgage broker and your accountant. This will give you different perspectives and opinions to help with the decision. It’s important to understand that if you invest in property under your own name and then later decide the SPV route is more favourable, it can be costly getting those properties transferred to your new company.
If you own just one buy to let and have no plans to purchase more then a company structure is probably a bit over the top. But if you are a high-rate taxpayer, perhaps because of Section 24, and you hold several properties then an SPV could potentially save you quite a lot of money.
There’s no easy way to decide what to do. Having an SPV company brings its own costs and administrative burden, regardless of the value of the assets.
As well as the immediate benefit of being able to fully offset the mortgage interest there are two scenarios where an SPV would usually come out on top:
- You intend to build up a portfolio of properties, hold these for the long term and also draw income from the portfolio, perhaps as a pension income.
- You own, or will own, several properties that will be held over the long term and then handed down to your family so they may benefit from the portfolio for years to come.
GET SOME ADVICE FIRST
It really is very important to get some professional advice before making any new arrangements. The viability of an SPV will depend on:
- Your current and future income
- What level of mortgage debt you will have
- The length of time that you intend to hold the properties for
- Will you draw an income now or at a later date
- Are there to be any other owners/shareholders involved
- Will you be buying and selling property
- The cost of running the SPV
- Your plans for the portfolio upon your death
SPV MORTGAGES
Limited company mortgages are most associated with buy to let.
But in fact they can be used for many different letting types, including holiday let, HMO, MUFB and commercial.
How to set up an SPV Limited Company
The process of setting up a new company is surprisingly simple, and easy. SPV’s are usually set up as a limited company but they can also be an LLP, Plc or a Trust.
There are three ways to incorporate a new company:
Ask your Accountant
Use a Company Formation Agent
Do it yourself!
Let’s take a look at each one in turn.
Accountant
£400-£1000 range
The most expensive option but they will do all of the work for you.
Your accountant will be able to guide you through the set up options. Expect to be asked lots of questions but afterwards you can put your feet up and wait.
Could take a few days to a week to set up.
Formation Agent
£75-£200 range
Using a Company Formation Agent is very affordable and is mostly completed online.
You will need to have all of the information ready when completing the online application plus your payment method.
Usually completed within 24 hours with documents emailed to you.
DIY
£50
You can register a new company direct with Companies House but you need to be confident about what you need.
You must have all of the information ready when completing the online application plus your payment method.
Usually completed within 24 hours.
Information Required to Set Up a Company
COMPANY NAME
The preferred name for your new company, must not be the same or too similar to an existing company or trademark.
REGISTERED OFFICE
The official address of your company which must be a full postal address (not a PO Box) in the country in which your company is incorporated. Companies House and HMRC will use this address to send all statutory notices and it will be displayed online.
BUSINESS ACTIVITY (SIC CODE)
You need to tell Companies House about your new company’s business activity. This is done by choosing a SIC code (Standard Industrial Classification code) which describes and classifies business activities. We look at SIC codes further down this page.
ALL DIRECTORS
- Full name
- Date of Birth
- Occupation
- Nationality
- Residential address (not public)
- Service address (public)
ALL SHAREHOLDERS
- Full name
- Date of Birth
- Residential address (not public)
- Service address (public)
- Nationality
- Shareholding
New bank account
Don’t forget to apply for a new bank account once you have received confirmation of the new company details.
Are you thinking of using an SPV?
We have a page that explains in more detail how to set up an spv limited company.
Running an SPV Company
Regardless of how you registered your new company you may find that an accountant is required to do the annual accounts and submit them to Companies House.
When you are actively running your business you will have rental income and property expenditure flowing in and out of your bank account. This can provide a simple ‘profit and loss’ calculation each month based on cash flow.
But a Company has to provide more than this during the course of a year.
Your annual accounts need to be drawn up in a formatted way and must show a balance sheet which will include your property values, assets, liabilities and any directors loans.
Every 12 months you must submit a confirmation statement containing accurate and up to date information.
You must also pay HMRC any corporation tax you owe by the statutory deadline which for most small companies is 9 months and 1 day after the end of your company’s Corporation Tax accounting period.
Your accountant is more than just a number cruncher, they will be able to provide valuable advice as your company grows and generates profits. But it is important to weight up the cost of this professional help against the financial benefits received from the SPV wrapper.
SIC Codes Explained
The SIC code forms part of the initial registration with Companies House and provides a description of your company’s type of business. ie what does it do?
SIC stands for Standard industrial classification of economic activities.
When setting up your company you need to choose the best SIC code for your business.
In terms of property SPV’s they would be:
- 68100 – Buying and selling of own real estate
- 68209 – Letting and operating of own or leased real estate
- 68320 – Management of real estate
They can be found in Section L of the list of SIC codes:
Section L Real estate activities
- 68100 Buying and selling of own real estate
- 68201 Renting and operating of Housing Association real estate
- 68202 Letting and operating of conference and exhibition centres
- 68209 Other letting and operating of own or leased real estate
- 68310 Real estate agencies
- 68320 Management of real estate on a fee or contract basis
It is possible to change the SIC code should it be incorrectly allocated or if the company changes it’s activities.
Can a Limited Company get a mortgage?
It would be very disappointing to read this far down the page to find that you can’t have an SPV Mortgage !
Yes, of course they can.
Where we refer to a Limited Company this needs to be an SPV with the correct SIC codes. Lenders will check these requirements. The main high street lenders haven’t really ventured into SPV mortgages yet, so it’s the specialist lenders and finance companies who will be able to help.
Mortgages are available to existing companies and to brand new SPV’s, without any accounts or records. This can happen because the lenders take a Personal Guarantee (PG) from the company directors, to cover the mortgage debt should the company fail, enabling them to take on a bit more risk.
In our opinion it is essential that you work with an independent mortgage broker for buy to let mortgages or limited company mortgages. This gives you access to all of the specialist lenders plus the experience of the adviser.
CONTACT A MORTGAGE BROKER
If you are ready to take the next step then we can put you in touch with a fully qualified independent mortgage broker.
Why you should use a mortgage broker
SPV mortgages can’t readily be found on our high streets. So for a property investor, an experienced mortgage broker, is worth their weight in gold as they have the key that opens up hundreds of mortgage options, not accessible to anyone else.
The brokers we work with will help you to understand the industry jargon, provide solutions and advice that are in your best interests. They will be CeMap qualified and experienced in dealing with a Limited Company property purchase and all that it entails.
When investing via an SPV there are three components that your broker will look into:
- YOU: Do you really need to use an SPV? What are your plans and goals for property investment. Investing through a Limited Company is not suitable for everyone so have a chat with your broker and see what they think.
- THE SPV: The company needs to be correctly registered and have the right SIC codes, shareholders and directors for a mortgage application to be accepted.
- THE MORTGAGE: Your adviser will scour the market and search for the most appropriate deal that suits you, while looking to also achieve the desired loan amount.
Brokers are the key to getting the best rates on a specialist mortgage. The brokers we work with are experts in their field, ensuring that you have access to the best deals and the best service.
From start to finish.
Are you ready to take the next steps?
If so let’s get you introduced to a mortgage broker.
In Summary
There’s no doubt that ownership of buy to lets under a limited company structure is here to stay. The main driving force is currently taxation but as we have seen above there are many more additional benefits.
Yes, spv mortgage rates are a bit higher than standard rates, maybe 0.50%-1.0% above, but this gap will narrow as more landlords incorporate their portfolios and lenders compete for business.
Nevertheless, for all the benefits an SPV can bring it is wise not to jump too soon. Have a discussion with your accountant to see what the effect would be for you. If your accountants do not have much experience in this area then look around for a qualified professional who can.
It’s really important that you bring your mortgage broker into this discussion as early as possible. Often there’s some preparatory work that needs to be put in place before the mortgage side can move on.
We can put you in touch with a CeMap qualified whole of market broker who is experienced with limited company buy to let. Please click the button below to get started.
FAQ
Frequently Asked Questions
What’s the difference between an SPV and a Ltd Company?
Apart from the alternative SIC codes there’s not much difference legally.
Can you get a limited company holiday let mortgage?
Yes. Lenders and Landlords are now moving to the SPV model for holiday lets.
Who owns the properties
The Company will own the property and you, as a shareholder, will own the Company.
Do I need an accountant?
No. But it’s much easier with one who understands property investment.
Can an Ex-Pat buy with an SPV?
Yes, this is fine. Lenders are happy with ex-pats.
What about Stamp Duty?
There’s no difference in the amount you are liable for, with or without a company wrapper. Use our stamp duty calculator to see what it might cost.
