What are SPVs and how can they help landlords?.
If you’ve decided to set up a limited company to manage your buy-to-let business, there are two avenues you can pursue.
One is to set up a trading company, which operates in the same way as any other business. And the other is to set up a ‘Special Purpose Vehicle’ or SPV. We’ve gone into detail here about why you might want to consider the SPV route when setting up a limited company, and how to go about it.
What is an SPV?
It’s a company set up solely for the purposes of purchasing, holding, or renting out property, and nothing else.
So if you’re a part-time landlord thinking of setting up a limited company for tax purposes, and your business makes all of its income from property, it’s an option that could work for you.
Why should I consider setting up an SPV?
An SPV can hold multiple properties and can be used to quickly expand your property portfolio; instead of paying Income as an individual, an SPV will pay Corporation Tax on any profits made. Since Corporation Tax is charged at 19%, there can be significant tax benefits to owning a property via an SPV for higher rate tax payers who might be charged 40% or more, so you could be left with more capital to re-invest.
When it comes to getting a mortgage on a buy-to-let property, it can be easier for the mortgage provider to underwrite the application from an SPV than from a normal trading company. As the SPV is kept separate from your own personal liabilities, lenders also tend to offer a more generous mortgage calculation. Because all of the SPV’s income and liabilities are tied to the property, it makes it simpler to assess whether the SPV can cover the mortgage repayments and management fees. As a result, more mortgage products are available to SPVs than other limited companies.
Trading companies’ multiple income streams and multiple liabilities make them a bigger risk for mortgage providers. You can still get a buy-to-let mortgage if you register as a trading company rather than an SPV; you’ll just have less choice about the mortgage providers (and mortgage products) that you can use.
Do I still own the property when I buy it through a limited company?
Your company will own the property, and as you own your company, you’ll ultimately own the property. If you have a mortgage on the property, your lender will still have the same rights over the property should you fall into arrears as with any other mortgage.
I currently own a rental property. Can I transfer it to my limited company?
Yes you can. However, it’s rarely economically viable with only one or two properties.
That’s because in most cases you’ll personally need to sell the property, and your company will then need to buy it. This means you’ll have to pay capital gains tax personally on the sale, and your company will need to pay Stamp Duty on the purchase (with a surcharge of 3% which applies to buy-to-let investors and limited companies). You may also then have to pay early repayment charges for exiting your mortgage early.
How do you set up an SPV?
You can ask your accountant to do it, or you can do it online yourself quickly for less than £20 on the government website.
To start you’ll need to identify a five-digit ‘SIC’ code that applies to your business which you can find on the Companies House website. This official code is used to classify your business, and every business has one. You can view the full list online, but many buy-to-let landlords find their activities fall under SIC Code 68209. Other property-related codes can be found in ‘Section L’.
Next you’ll need:
A company name. You’ll need to choose something that nobody else has – and you can search the existing register to see if someone else has used your idea before.
A company address. This must be a physical address in the UK; you can use your own home address, but be aware this will be visible on the Companies House register. If you have an office, consider using that instead.
At least one director. They need to be at least 16 years old.
Details for the shareholders. The shareholders are the owners of the business, and can be the same as the directors. You need at least one, but can have as many as you like.
You also need:
A memorandum and articles of association. These record the shareholders’ agreement to form the company, and the written rules. There are templates available on the government website.
Details of anyone with significant control (PSC). This includes anyone with 25% of more of the shares.
Why would I want to set up a trading company instead?
An SPV is a non-trading company, existing exclusively for buying, selling and letting property.
If you also want to trade in any other kind of product or service – for example, offering property maintenance, where you employ tradespeople as full-time staff and advertise your services to the general public – you can roll all of your business together into a trading company.
A third option is to simply have two businesses: an SPV for your property dealings, and a trading company for whatever else it is you do.
How could we help?
As property finance experts with common sense, we have decades of experience helping limited companies and SPVs access the right finance products to seize opportunities and grow their portfolios.
If you’re applying for a buy-to-let mortgage or secured business loan, we’ll simply ask to see your corporate structure chart and identify any shareholders involved. We can also look at the wider business group and you – the individual behind the application – when assessing affordability if we need to, factoring in projected income, cash flow statements and net worth statements to make a decision. We’re also able to accept projected rental income or ‘top-slice’, factoring in any other income if rental income alone won’t sufficiently cover your monthly payments.
To find out more, get in touch with our friendly team of experts today.
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