A Contractors Guide to 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.

Usually, when you invest in a property, the buy to let mortgage is in your own name. When you buy a property through a SPV limited company (a small business set up in your name), the company owns the property instead of you. Therefore, the mortgage is taken out in the company’s name. You pay money into the SPV company, which can be used as a deposit for properties; a limited company buy-to-let mortgage can be used to cover the rest of the property’s price.

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% (dropping to 18% in 2020).
• 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.
• As the company owns the property it is relatively easy to change the shareholders. This is very useful if you plan to gift property to a family member and it could help the beneficiaries save money on Inheritance Tax. All you need to do is add the beneficiaries as shareholders.
• 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.

Unfortunately, there are a few disadvantages to consider before opening a SPV company.

• SPV limited company buy-to-let mortgages can cost more than normal buy-to-let mortgages. This is because interest rates are often higher and lenders sometimes charge more to cover the extra paperwork.
• Some lenders may require a personal guarantee from the directors of the SPV limited company, so if the mortgage is not fully re-paid you (and the other shareholders) may be liable for the debt.
• If you want to transfer existing properties into the company you could be liable to pay Stamp Duty Land Tax, Legal Costs, Higher Rate Tax brackets and potentially Capital Gains Tax.
• When a company sells a property there is no Capital Gains Allowance, whereas an individual selling a property would have a £12,000 tax-free allowance (2019/20).
• If you want to draw all the rental profits as income, Corporation Tax is applicable at 19% and then the director will pay either 7.5% (basic rate), 32.5% (higher rate) or 38.1% (additional rate) Dividend Tax.
• Reduced lender choice as there are not many lenders who offer SPV limited company buy-to-let mortgages.

Unfortunately, there are a few disadvantages to consider before opening a SPV company.

• SPV limited company buy-to-let mortgages can cost more than normal buy-to-let mortgages. This is because interest rates are often higher and lenders sometimes charge more to cover the extra paperwork.
• Some lenders may require a personal guarantee from the directors of the SPV limited company, so if the mortgage is not fully re-paid you (and the other shareholders) may be liable for the debt.
• If you want to transfer existing properties into the company you could be liable to pay Stamp Duty Land Tax, Legal Costs, Higher Rate Tax brackets and potentially Capital Gains Tax.
• When a company sells a property there is no Capital Gains Allowance, whereas an individual selling a property would have a £12,000 tax-free allowance (2019/20).
• If you want to draw all the rental profits as income, Corporation Tax is applicable at 19% and then the director will pay either 7.5% (basic rate), 32.5% (higher rate) or 38.1% (additional rate) Dividend Tax.
• Reduced lender choice as there are not many lenders who offer SPV limited company buy-to-let mortgages.

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.

Churchill Knight & Associates Ltd has over 20 years of industry experience so you can rest assured that we are 100% compliant with all of HMRC’s regulations. We work alongside industry leading cloud-based software providers (FreeAgent) to give you 24/7 access and real-time information regarding your business finances. Our SPV service includes the following:

• Free SPV limited company set up
• All registration with HMRC completed on your behalf
• Company registration for PAYE tax upon request (additional charge)
• Full set of accounts prepared and submitted to HMRC on your behalf
• Access to a FreeAgent account with the following benefits: invoice tracker, tax timeline and expenses tracker
• Tailored tax planning and advice
• Your own dedicated Account Manager
• Unlimited support via phone and email
• Minimal ongoing administration

For more information give our team a call today on 01707 871622 to discuss how we could help you set up and manage your SPV limited company.