How to set up an SPV Limited Company
As well as owning properties in your own name, it’s also possible for them to be held within an SPV Limited Company.
If you’re looking to do this for the first time you will need to set up and register a new limited company. We explain what an SPV company is and the process of setting one up.
The concept of using a separate limited company for property investment is not a new one. Seasoned investors and property developers have been using them for years.
Experienced landlords would often hold multiple properties in this way as it’s a bit tidier on the paperwork side. It also keeps those assets separate from anything owned personally.
Property developers generally use a different SPV for each project or development. Again, this keep the admin nicely separate and also isolates the project from any others.
What is an SPV Limited Company?
SPV stands for Special Purpose Vehicle. In essence it is a normal limited company that has been restricted to just purchasing, managing and letting property.
The company will own the properties, and therefore it also pays the mortgages. So all of the rental income flows through the company bank account and it will need to pay the mortgage and associated costs from this income.
The SPV is a standalone legal entity which will have its own assets and liabilities. While we normally work with an SPV as a private limited company, it is possible for them to be set up as a Limited Liability Partnership (LLP), Public Limited Company (plc) or other business types.
The term SPV is used extensively within the world of mortgages and property but it may not be a term that everyone recognises.
In the context of property investment an SPV company means that:
- The company applies for the mortgage/s
- The company owns the property
- Shares are created to determine ownership of the company
- Directors are appointed to run the company
- The rental income belongs to the SPV
- All property expenses will be paid by the company
- An SPV can own an unlimited number of properties
- If, at the end of the year, a profit is made, this belongs to the company
If you already run a trading business via a limited company it is possible for this to be used to buy property. However, this can cause issues if you wish to sell your business at some point (as it owns the properties) and lenders prefer to lend to SPVs as opposed to trading entities. If in doubt, take advice.
Who would need an SPV Company?
There are a few reasons why someone would want an SPV:
PROPERTY DEVELOPER
So a property developer will usually create a new SPV for each development they undertake. Ownership of the land and any finance needed will be in the name of the associated SPV company. The full cost of servicing a mortgage will be met by the company.
This allows a developer to ringfence assets and liabilities from other projects, and assets owned personally.
Once the project has been completed and sold the SPV company will be dissolved as it is no longer required.
SERIAL LANDLORD
For a landlord that owns many properties, and continues to expand their portfolio, an SPV brings a few benefits.
It will provide some separation between personal assets and liabilities.
The full cost of servicing any mortgages will be met by the company.
The rental income gets paid to the company not the landlord. If a landlord receives this money personally then it will be liable to personal taxation. In addition, the landlord will be receiving income that they may not need now but wish to save for the future, this again will be taxed.
Whereas under the umbrella of a limited company there is no personal taxation until the landlord decides to withdraw some money, and even then they can determine how much this is and exactly when it is paid. A useful option for personal tax planning.
So by having the company receive the rent, any profits from income can just accrue within the company. There will be taxation levied on annual profits but this is less than personal tax rates. Then when there is sufficient cash the landlord can use it for the deposit on a new property purchase.
MODEST LANDLORD
There is where most of the new activity is taking place.
Landlords that personally own rental properties can no longer claim 100% of the buy to let mortgage interest against income. This is a significant change that dramatically alters the returns available from residential property investment.
However, if that same property is placed within a Special Purpose Vehicle property company then 100% of the mortgage interest can be legitimately be recorded as a business expenses, thus reducing profits and taxation.
The pros and cons will be different for each person, so it’s important to take professional advice. But landlords who own more than one property could be better off with an SPV set up.
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.
How do you set up an SPV?
It’s actually a lot simpler than you might think.
At this point we are going to assume that you have received advice about the advantages and disadvantages of using an SPV. And that advice also included who should own the company and who should register as directors.
To begin you will need to have the following information:
Registered Office
This will be the official address of your company and it must be a full postal address in the country in which your company is incorporated. You cannot use a PO Box Number.
Business Activity
You are required to provide Companies House with your business activity. This is done by choosing a SIC code (Standard Industrial Classification code) which describes and classifies business activities.
Director’s Details
The directors are the individuals that will be running the company.
You will need to know the full names, addresses, date of birth etc
Shareholders’ Details
The shareholders are the individuals that own shares in the company. There can be more than one shareholder and each can own shares in different amounts.
You will need to know the full names, addresses, date of birth etc
Oh, and of course you also need to have a unique company name!
How do I choose the SIC Codes?
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 normally be:
- 68100 – Buying and selling of own real estate
- 68209 – Letting and operating of own or leased real estate
- 68320 – Management of real estate
Companies House
Companies House is a Government body that holds the records of more than 4 million UK limited companies. They incorporate and dissolve limited companies, register company information and make it available to the public.
When you set up a Special Purpose Vehicle company you will be dealing with Companies House.
There are three ways that this can be done:
- Do It Yourself – Yes you can DIY a new company in a matter of minutes. This is ultra cheap but it’s not an option that we would recommend. This company is a wrapper for your properties (and your money), so we feel it’s important to let someone else have the responsibility.
- Use an accountant – Your accountant will be able to set up a new company on your behalf and will make sure that all of the right information is registered. This is the most expensive option and it could take a few days to a week to set up.
- Use a formation agent – Formation agents are specialists that register new companies and handle all of the official paperwork and filing responsibilities. This is a very affordable option with most registrations completed within 24 hours.
1st Formations Limited
1st Formations is a company formation agent. They have formed over 1 million companies and assisted many thousands of clients to grow their business with expert advice on limited companies, reporting requirements, and corporate governance.
You can use their website to search for a new company name and then go on to register it.
They have 5 company formation packages for you to choose from.
They also offer a 24/7 Customer Support line.
Visit www.1stformations.co.uk to learn more.
How do SPV limited company mortgages work?
As it will be the limited company applying for the mortgage you need to find a lender that accepts SPVs. The market has been expanding, reacting to investor demand, and there are now a good number of lenders offering SPV mortgages.
The arrangement of the mortgage is much the same as any other mortgage:
REPAYMENT METHOD – Repayment or interest only
INTEREST RATES – Fixed, tracker, variable
MAX LOAN TO VALUE – 75%
The mortgage amount is still determined by a rental cover calculation.
Buy to Let Mortgage Calculator
While the mortgage is in the name of the limited company, the directors will need to provide their personal information along with proof of income. It is common practise for all directors to provide personal guarantees to the lender.
For more information please visit our SPV Mortgage page.
Company memorandum and articles of association
Companies in the UK are required to have a memorandum and articles of association. These documents are produced during the company formation process and registered at Companies House.
The memorandum of association is a legal statement that contains the names of the founding members (shareholders/guarantors).
The articles of association is an important document that outlines the rules about how a company must be run. You may choose to adopt Model articles from Companies House, or make alterations to this standard document to create a set of personalised rules and regulations.
Sole directors and Hashmi Case
The 2022 Hashmi v Lorimer-Wing legal case has brought important implications for landlords using SPV limited companies with a sole director.
This case highlights the potential risks of making unilateral decisions within your SPV, even if you are the only director. The High Court ruled that even with a sole director, standard company articles of association still require decisions to be made by a formal board meeting.
To ensure your past and future decisions as a sole director are valid and legally sound, there are a few options to consider.
You could appoint another director, even if it’s a family member or trusted adviser, to allow for formal board meetings and protect your decision-making.
Alternatively, you could consult a solicitor to amend your SPV’s articles of association, explicitly allowing for sole director decision-making if that’s your preference.
Why Limited Company Landlords Need to Pay Attention
With rapidly changing interest rates, any discrepancies in your company’s articles of association can cause unexpected delays during the mortgage process. Delays mean potentially losing out on a secured rate or even facing significantly higher mortgage costs.
To avoid this:
Double-Check Your Articles: Don’t panic! Being a sole director is fine, but ensure your limited company’s articles of association are clear, accurate, and reflect your directorship structure. This will streamline the mortgage process.
(BTW – None of this is legal advice)
Tell HMRC when your company is active
You must tell HMRC within 3 months of starting your tax accounting period if your limited company is now active.
The best way to do this is to use HMRC’s online registration service where you can register for Corporation Tax.
Bank account
You will need to arrange a new business bank account in the name of your limited company.
Tenants will pay their rent into this account. All other property running expenses, including the mortgage payments, will also be paid from this account.
It can take quite a while for this type of business account to be fully set up, so we would suggest starting the process at the earliest opportunity.
You will find that there are charges for having this type of bank account, although many banks provide free banking for the first 12-18 months.
Limited company running costs
As well as the costs of running and maintaining your properties there are also costs associated with having a limited company.
Each year certain returns and information needs to be provided to Companies House, to keep the records up to date.
You are able to do this yourself although most investors will ask their accountant or formation agent so that the returns are made on time.
Each year you will need to submit the trading accounts for your company. Unless you are particularly experienced in this field we would recommend this is left to your accountant.
FAQ
Frequently Asked Questions
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What’s the difference between an SPV and a Ltd Company?
There’s not very much difference. Both have obligations that are required by Companies House.
However, the SPV will be established as a single purpose company and this has to be reflected in the SIC codes.
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Does the stamp duty surcharge still apply?
Yes. All properties will be charged as second properties.
Use our Stamp Duty Calculator to see the likely fees.
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Who owns the property?
Your SPV company owns all of the properties held within it. This will be reflected at the Land Registry.
As a shareholder of the SPV, you and possibly others, will be the owners of the company.
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Is it easy to get a mortgage?
It’s fair to say that currently there are more choices for someone looking for a mortgage in their own name.
However, it is straightforward to apply for a limited company buy to let mortgage.
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What type of properties can be mortgaged using an SPV?
Mortgages are available for all property types. These will include HMO’s, student lets, commercial and semi-commercial, MUFB and single lets.
An experienced SPV mortgage broker can assist with all of these.
