Benefits of using a Special-Purpose Vehicle company for buy-to-let property
If you want to invest in property and grow your property portfolio, you must consider how you purchase it. You can purchase property as an individual, a limited company, or via a Special-Purpose Vehicle (SPV) company. Our latest article provides an overview of an SPV company and the benefits of using one for buy-to-let property.
What is a Special-Purpose Vehicle company?
SPV companies are mostly private limited companies, but they could also be Limited Liability Partnerships (LLP), Public Limited Companies (Plc), or other business types. When it comes to property investment, an SPV company is often formed to purchase, manage, and grow your buy-to-let property portfolio. If you purchase a property through the SPV company, you will not own any properties personally. Instead, the SPV company owns the property.
An SPV has its own legal status as a separate company, which means it operates independently with its own assets and liabilities. It is often used to isolate financial risk. You can keep multiple properties under one SPV company to rent out each month and build your buy-to-let portfolio.
Why should you consider using a Special-Purpose Vehicle company for your buy-to-let property?
There are many reasons why you should consider using an SPV company for your buy-to-let property:
- Financial risks are isolated as the SPV company is a separate legal entity.
- The same SPV company can be used for multiple properties, helping to reduce the administration and ongoing costs.
- You can grow your property portfolio quickly, as no Income Tax is due on retained profits. This gives you more capital to reinvest and use to purchase future buy-to-let properties.
- The income you receive if you own a buy-to-let is taxed as part of your income. The tax on your income is then charged in accordance with your income tax band (20% basic rate, 40% higher rate and 45% additional rate). Meanwhile, with an SPV company, Corporation Tax is due instead. This could work out cheaper for some investors as Corporation Tax is charged at 19-25% depending on your company’s profits.
- Purchasing a property through an existing limited company could mean you lose the benefit of closing that company down via a Members Voluntary Liquidation (MVL) and efficiently withdrawing the retained profits tax. However, if you purchase buy-to-let property through an SPV company, you can keep it as a separate entity and not lose the benefit of closing the existing company down via an MVL.
- Unlike holding properties personally, where you cannot deduct the finance costs from rental income, an SPV can claim full relief on mortgage interest and other finance costs as it is an allowable business expense. This is particularly beneficial to higher-rate taxpayers to reduce the Corporation Tax bill.
- SPV companies are usually preferred to trading limited companies by buy-to-let lenders who offer mortgages to corporate vehicles as they are easier to understand and quicker to underwrite.
Are there any disadvantages to consider?
There are some disadvantages to consider before setting up an SPV company:
- Reduced choice of lenders who will offer SPV company buy-to-let mortgages.
- As a director of an SPV some lenders may require directors to provide personal guarantees.
- The SPV company is a separate legal entity and is responsible for its debts, which means the director’s (and shareholders’) personal assets are protected. However, if a director puts their own assets as a personal guarantee, they may be liable for the debt if anything happens.
- SPV company buy-to-let mortgages are often more expensive than normal personal mortgage rates. Lenders also charge more to cover the extra paperwork involved, and interest rates are often higher.
- There is no Capital Gains Allowance when a company sells a property. However, when an individual sells a property, they have a £3,000 tax-free allowance (for the 2024/25 tax year).
- If you withdraw all rental profits from an SPV company as income, the SPV will pay Corporation Tax on the rental profits at a rate of 19 – 25% (depending on profits). The director will also pay Dividend Tax at the appropriate rates.
I currently own a rental property. Can I transfer the property to a Special-Purpose Vehicle company?
The simple answer is yes, you can. However, it may not be the most cost-effective option. If you decide to manage your property portfolio through an SPV company, transferring a property to an SPV company is not a legal option; the property(s) must be sold to the SPV company at market value. When you sell your rental property to the SPV company, you will have to pay Capital Gains Tax on the sale of the property, and your SPV company will have to pay Stamp Duty Land Tax on the purchase of the property.
Therefore, if you are considering purchasing a buy-to-let property, it may be more beneficial to set up the SPV company first and then buy the property through the SPV company to avoid paying Stamp Duty Land Tax and legal fees twice.
Should I set up a Special-Purpose Vehicle Company for my buy-to-let properties?
Investing in property is growing in popularity, and the potential tax efficiencies and asset protection advantages of an SPV make it an appealing option. However, before you set up an SPV or purchase property, it’s important you find the best vehicle to minimise any risks and carefully consider your circumstances, investment goals, and business plans for your property portfolio.
It is advisable to seek professional advice from financial, legal, and tax professionals who can advise on company structuring and the suitability of an SPV for your business goals.
Schedule a consultation to find out more about our landlord accountancy service
Churchill Knight & Associates Ltd is an expert landlord accountancy provider with over 25 years of experience. If you are interested in setting up an SPV company or want to understand more about your liabilities as a landlord, why not give our expert team a call?
We provide multiple services, including accountancy for landlords with or without a special purpose vehicle and a dedicated in-house Self-Assessment Tax Return Department. Whether you want to switch accountants or launch a company for the first time, our expert team can discuss your requirements and offer specialist advice.
For more information about our landlord accountancy service, please call 01707 871622. You can also schedule a free consultation, and a member of the team will contact you to discuss your requirements.
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