17th November 2023

Purchasing BTL property via limited company SPV

The Buy-to-Let (BTL) market has long been an attractive investment option for those looking to achieve long-term financial growth in the UK. Recent changes in tax legislation have made purchasing a BTL property through a Limited Company Special Purpose Vehicle (SPV) a popular choice among investors. Let's explore the ins and outs of this method, its benefits, and potential pitfalls.

What is a Limited Company SPV?

A Special Purpose Vehicle (SPV) is a distinct legal entity set up for a specific business purpose. In the context of BTL, an SPV is a limited company formed specifically to hold property investments. Unlike trading companies, which might engage in various business activities, an SPV's sole activity is typically property investment or management.

Why Use an SPV for BTL Property Investment?

There are plenty of reasons why using an SPV for BTL property investment is a sensible approach. Let's take a look at why you might want to consider this method:

Tax Efficiency

One of the main reasons for the surge in SPVs for BTL properties is tax benefits. Changes in UK tax laws in recent years have eroded some advantages of owning BTL properties personally. Mortgage interest relief restrictions for individual landlords have made operating via an SPV financially more appealing.

In an SPV, corporate tax rates apply to rental profits, which are currently lower than higher personal income tax rates. Additionally, within a limited company structure, it's possible to deduct mortgage interest as a business expense fully, thereby reducing taxable profits.

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Liability Limitation

Operating through an SPV limits personal liability. In the event of financial problems or legal claims related to the property, only the assets of the company are at risk, protecting individual investors' personal assets.

Considerations Before Setting Up an SPV

Just like any other financial product, it's important that you assess the merits of an SPV before diving into it. So, let's discuss some of the things that you'll want to factor into your decision-making process before embarking on an SPV:

Stamp Duty Land Tax (SDLT)

When transferring properties from personal ownership to a company, it's essential to be aware that this can trigger a Stamp Duty Land Tax charge, even if no money changes hands.

Mortgage Availability and Rates

While there's an increasing number of mortgage products available for limited companies, the range may be narrower than for individual borrowers. Interest rates for company mortgages might also be slightly higher.

Company Costs and Administration

Operating through a company means additional administrative tasks, such as filing annual accounts and company tax returns. There may also be costs associated with setting up and maintaining the company.

How to Set Up an SPV for BTL Property

Setting up an SPV is relatively straightforward, but it still helps to know how it all works. Generally speaking, setting up an SPV for BTL property follows these steps:

• Choose a Company Name: This should be unique and not too similar to existing company names.
• Register with Companies House: You'll need details of the company's directors and shareholders. There's a small fee for registration.
• Set Up a Business Bank Account: This will keep your property business finances separate from personal finances.
• Consult a Tax Advisor: This step is crucial to ensure all tax considerations are appropriately addressed.

Transferring Existing Properties to an SPV

If you already own properties personally and wish to transfer them to your new SPV, it's possible but with considerations:

• Capital Gains Tax (CGT): Transferring properties may result in a CGT charge, as it's treated as a sale at market value.
• Mortgage Issues: If a property has a mortgage, transferring to an SPV might require repaying the mortgage or obtaining permission from the lender. A new mortgage will likely need to be set up in the name of the company.

Potential Pitfalls

Finally, it's worth considering the potential challenges that could arise from using an SPV for BTL. Some of the main pitfalls to think about are:

• Exit Strategy: Extracting money from a company can be more complex than taking rental income or selling a property owned personally. It's essential to plan how profits will be taken out, considering dividend taxation and other factors.
• Future Tax Changes: Tax regulations are ever-evolving. What's beneficial today might change in the future. Continuous review and adaptability are key.

Unlock the Benefits of SPV for BTL Today

Purchasing BTL property via a Limited Company SPV can offer significant benefits, particularly in the realm of tax efficiency. However, it's essential to be aware of potential pitfalls and seek professional advice to ensure you make informed decisions tailored to your individual circumstances. As with any investment, due diligence, research, and ongoing management are crucial to success.

If you have any questions about SPV for BTL, or would like assistance in choosing the right mortgage product for your circumstances, please get in touch with our team at WIS Mortgages today.

The Financial Conduct Authority does not regulate commercial buy to let business or tax advice

Frequently Asked Questions

Q. What are the benefits of buying property via SPV?

A. There are a few notable benefits to this approach, namely tax savings and an easier transfer of assets.

Q. Can I live in the property owned by my SPV?

A. Unfortunately, as this setup uses a BTL model you won't be allowed to use it as your dwelling. This extends to your family members too - and breaching these conditions could result in action taken against you by the lender.

Q. Is an SPV different to a limited company?

A. A special purpose vehicle (SPV) is a type of limited company that can be used for a specific purpose. For property investment, it can be a useful way to purchase and profit from rental properties.

As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments.

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