Special Purpose Vehicle Companies

A Special-Purpose Vehicle (SPV) company is a limited company which is set up for the sole purpose of purchasing and managing buy-to-let properties. A SPV company is often seen as a ‘bankruptcy-remote entity’ because the operations of the company are limited to the purchasing and financing of specific assets; enabling companies to isolate and securitise assets, create joint ventures and perform other financial transactions. You can hold multiple properties under one SPV to rent out each month and build your buy-to-let portfolio.

We’ve compiled a short overview of the advantages of using a SPV company to purchase properties for buy-to-let activities.

• Buy-to-let lenders which offer mortgages to corporate vehicles mostly prefer SPVs to trading limited companies because they are easier to understand and quicker to underwrite.
• Normal buy-to-lets are taxed as part of your personal income which means you will pay Capital Gains Tax (CGT) on the income you make from the rent. Whereas with a limited company buy-to-let, you will pay Corporation Tax instead. This could work out cheaper for some investors as Corporation Tax is charged at 19%.
• You can reduce your potential Income Tax liability as you are able to control how much income is taken out of the company, or you can leave it in the SPV if it is not needed.
• It is possible to grow your buy-to-let portfolio quickly through a SPV limited company as there is no Income Tax due on the retained profit, giving you more capital to re-invest.
• HMRC has committed to phasing out the ability to put through mortgage interest as an expense when operating as a sole trader. This is not the case with the SPV model and there is currently no plan for it to be phased out. On top of the mortgage interest, you will also be able to claim tax relief on repairs and service charges.
• You can use the same SPV company for multiple properties which allows you to build a portfolio within one entity, reducing admin and ongoing costs.
• If you make a personal investment into the SPV limited company it is possible to draw your investment back out of the SPV in the form of a director’s loan. Directors’ loans can get very complicated very quickly; always seek the advice of a contractor accountant to help you make an informed decision. Read our blog to find out more.
• Isolated financial risks as the SPV operates as its own entity.
• If you purchase property through an existing company it will mean you lose the benefit of closing that company down via a Members Voluntary Liquidation (MVL) and withdrawing the retained profits tax efficiently. However, if you purchase property through a SPV you are able to keep it as a separate entity from any existing company’s and will not lose the benefit of closing the existing company down via an MVL.
• Direct ownership of a specific asset.

If you buy a property without a SPV then you will have to buy it in your own name and pay Stamp Duty. If you then set up a SPV company you would have to effectively sell the property to the SPV and then pay Stamp Duty again. Therefore, it is advisable to set the SPV company up before you purchase a property to avoid paying Stamp Duty twice.

You will receive better mortgage rates from lenders who prefer SPV limited companies to trading limited companies as they are quicker to underwrite and easier to understand.

You will need to set the company up before the mortgage begins. However, you can apply for the mortgage before you set up the company. There is also no minimum time that your SPV limited company has to be trading for before the mortgage begins.