SPV Limited Company

How to set up an SPV Limited Company for landlord buy to let properties

In this guide, we’ll discuss how you can set a special purpose vehicle (SPV), which is a limited company for a landlord’s mortgaged buy-to-let properties.

The Knowledge

What is an SPV?

An SPV is a business entity that is set up for a well defined special interest.

When it comes to being a property investor, an SPV is usually formed for the purchase of buy-to-let or property development. An SPV can be used for other purposes. Often, an SPV is set up as a private company limited by shares; however, it doesn’t need to be. An SPV can be any type of business, this includes both a public limited company and a limited liability partnership.

What are the advantages of an SPV?

Within the context of property investment, the major reason that investors will opt to form an SPV may be that they plan on reselling in the future, they may wish to arrange finance on the property, or they may want to keep the asset and liability clear so that they can reduce their tax bill.

Here’s how an SPV could help you with your tax efficiency:

In the Finance Act of 2015, restrictions were introduced on the amount of interest that it is possible to claim as a tax allowance. This amount has been gradually decreased in subsequent years and is now zero. For the 2020-2021 tax year and going forwards, rental profits will be taxed with the maximum deduction at the basic rate of 20%. This has raised the tax liability and, as such, the operating costs for many landlords and investors that use mortgage finance. A result of this is that buy-to-let investments have become unviable and could lead to a loss. However, limited companies can still claim tax relief on the interest they pay on their mortgage. This means that being a limited company is a more effective and viable way of running a property business. It is essential to point out that an SPV can only work in this way under current legislation, which is, of course, subject to change.

What are the disadvantages of using a limited company for buy-to-let properties?

There are some disadvantages to the SPV model. Landlords that use an SPV could potentially pay out more than they will gain. This is because buy-to-let mortgages for limited companies generally charge higher rates of interest than those for individual landlords. Also, transferring property from an individual to a business makes it liable for stamp duty.

Why become a buy-to-let limited company?

Many private landlords that operate as individuals have seen a rise in their tax bill. This is because of the change in buy-to-let tax relief. As a result, there has been a big growth in limited companies being established for managing rental properties.

Do mortgage lenders prefer SPVs?

Mortgage lenders typically prefer limited company SPVs as the risk involved is easier to understand. For instance, a new SPV set up for a property project will have no trading history. As such, there will be no pre-existing debts, charges, or obligations that could hinder the decision to lend. The SPV will be separate from its owners for tax purposes.

When proving a mortgage to an SPV, lenders will often look at the financial standing of the company directors rather than the SPV itself, which may have zero income and no other assets.

How many buy-to-let mortgages are available to limited companies?

Approximately 75% of all buy-to-let mortgages are only available to individuals. The remaining 25% are for limited companies, including SPVs.

Finding the right buy-to-let mortgage for limited companies

After you have incorporated your SPV, you’ll find that mortgage options change. You’ll need to look for more specialist products as not all buy-to-let mortgages are available to SPVs; however, as SPVs are becoming more commonplace, lenders are starting to respond to the demand. It should become easier for new SPV landlords to find the best deals to suit their needs.

What are the four steps to set up a buy-to-let limited company?

Here are the four steps to set up a buy-to-let limited company.

1. Register as a limited company with Companies House.

The first step is to incorporate. You can do this yourself online, although you could use a solicitor or accountant. The standard fee for registration is £12 and takes 24 hours. Paper submissions take ten days and cost £40.

2. Personal and business details

You’ll need to provide a few basic details. For example your company name, address, information about directors, company shareholders and what the company does.

3. Register for corporation tax

Once the company is set up, you’ll have to register for corporation tax. This needs to be done through companies house and will require your unique taxpayer reference.

4. Tax advisor

Once you have done this, you are officially a limited company for tax purposes and will pay corporation tax on your profits. This means that if you already have a portfolio, you'll need to transfer those over to your new SPV. You should seek advice before you do this.

Frequently Asked Questions

Q: Can a British ex-pat buy property using a UK limited company?

A: Yes. Lenders will lend to Britsh ex-pats using an SPV.

Q: Can I transfer my property portfolio from a personal name into a limited company?-

A: Transferring your buy-to-let from your own name into your SPV may be tax-efficient in the longterm. You should consult with an accountant to ensure that paying capital gains and stamp duty will be worth the tax savings.

When you transfer your property from your own name to a limited company, it will be treated as a purchase by lenders.

Lenders are able to use the equity in the property as your deposit. The bad news is that you will have to apply to a specialist lender for a new mortgage on each of your properties. You are not able to keep the current mortgage in place.

Q: Do buy to let lenders lend to existing trading limited companies?

A: There are some lenders that will lend to existing trading companies. If you would like to buy property in the name of your existing trading company, then you will find that your buy-to-let mortgage options may be more limited.

Q: Do I need a separate bank account for the limited company?

A: Yes, your new SPV will need to have its own bank account.

Q: Are personal guarantees required?

A: All SPV buy-to-let lenders require that you provide a personal guarantee.

Use Buy-To-Let-Accountants.co.uk for advice. We are experts in SPV and limited company lending. Get in touch with us today for a free, no-obligation initial consultation.