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.
What is an SPV?
It’s a company set up solely for the purposes of holding 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?
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 a result, more mortgage products are available to SPVs than other limited companies.
This is because all of the SPV’s income and liabilities are tied to the property, making it simpler to assess whether the SPV can cover the mortgage repayments and management fees.
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. Trading companies’ multiple income streams and multiple liabilities make them a bigger risk for mortgage providers.
How do you set up an SPV?
You can ask your accountant to do it, or you can do it online yourself. It costs less than £20.
You’ll need to identify a five-digit ‘SIC’ code that applies to your business. 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’.
- 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 from GOV.UK.
- Details of anyone with significant control. 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.
Lending decisions are subject to an affordability/creditworthiness assessment.
Any property used as security, including your home, may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.