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Setting Up SPV for Buy-to-Let: What is it & How Do You Start One?

Setting up a Special Purpose Vehicle (SPV) for a buy-to-let property is a popular method for investors to separate their personal and company finances. An SPV is a limited company that owns the property, with the investor as the shareholder.

Arjun Kumar
Arjun Kumar
Founder
Jul 9, 2024
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The tax benefits of owning property through an SPV can be substantial, especially for higher-rate taxpayers (40%) and additional-rate taxpayers (45%). If you want to take advantage of these benefits, this blog will explain what an SPV is and guide you on setting up SPV for buy-to-let.

Understanding Buy-to-Let SPVs

A buy-to-let SPV is a limited company set up exclusively to buy, hold, and rent homes. The term "Special Purpose Vehicle" simply refers to how this company was formed for a specific goal: managing buy-to-let properties.

SPVs can offer UK landlords many advantages, including tax savings, better mortgages, and asset protection. They can be better than owning properties under their name. Before deciding on an SPV buy-to-let mortgage for property investment purposes, it's essential that they fully consider both its advantages and drawbacks.

Benefits of Utilising an SPV Buy-to-Let

UK landlords consider SPV companies for tax savings for various reasons. Companies pay lower corporation tax rates than individual landlords. Mortgage interest can be fully deducted from an SPV as an expense. In contrast, individual landlords' relief for mortgage interest can be restricted. Let’s look at more benefits:

Flexible Profit Extraction

As a company director and shareholder, you decide how and when to take profits from your property business. Dividends or salaries could provide for more tax-efficient income planning strategies.

Improved Mortgage Options

Some lenders offer more attractive loan-to-value ratios and possibly reduced interest rates to SPV companies compared to individual borrowers.

Great Protection

Holding properties in a limited business gives excellent asset protection. If your property firm runs into financial problems, your personal assets are often protected. This implies that unless you've already provided personal guarantees to lenders, they're unlikely to be relied upon. This structure establishes a legal barrier between your personal funds and the property company, providing additional protection for your personal wealth in the event of business losses.

Avoid Personal Tax Liabilities

Are you expanding your property portfolio? An SPV company can make reinvesting profits easier. It avoids immediate personal tax liabilities. It also lets you grow your company without incurring personal tax liabilities.

Potential Drawbacks to Consider

While setting up SPV for buy-to-let provides many advantages, they're not without potential disadvantages:

Establishment and Running Costs: Establishing and maintaining a limited company requires additional costs, such as incorporation fees, annual filing requirements and potentially higher accounting fees.

Mortgage Availability: Certain lenders provide preferential terms to SPV companies. The overall pool of available mortgages may be less compared to what's available to individual landlords.

Capital Gains Tax: When selling property held within an SPV company, the annual capital gains tax exemption available to individuals may not apply. Stamp Duty Land: Tax may apply if you turn existing properties into SPVs. You must carefully check for this before transferring them.

Complexity: Operating through an SPV adds another level of complexity that landlords may find challenging.

Setting Up SPV for Buy-to-Let: Step-by-Step Guide

Here is a step-by-step guide on how to establish an SPV buy-to-let mortgage:

Select an Appropriate Name: When creating an SPV limited company, its name should be distinctive from that of existing companies and should reflect the nature of its activities. Consider something professional as you make this decision of SPV buy-to-let mortgage.

Appoint Directors and Shareholders: Decide who will play an integral part in running the company. As a UK landlord, you may serve both roles in SPV limited company buy-to-let mortgage. But, other family members or business partners could join as shareholders and directors as needed.

Establish Your Share Structure: Decide upon a share structure by establishing how many shares will be issued and their values. This decision may have consequences for how profits are divided among shareholders, each has control over profits and investments.

Register with Companies House: Register your company online through Companies House's website by providing details about its directors, shareholders and share structure.

Opening a bank account: As soon as your SPV limited company is registered, the next step should be opening a bank account under its name. This will help keep both personal and business finances separate.

Register Your Company for Corporation Tax: Within three months of commencing trading, your business registers for corporation tax with HM Revenue & Customs (HMRC).

Consider VAT Registration: If your annual rental income is expected to surpass the VAT threshold, that is £85,000, registering may be necessary; however, most residential property rentals are exempt.

Consult Professional Advice: Property investors are highly advised to seek professional advice. Particularly when structuring investment vehicles and tax arrangements. An accountant and solicitor who specialises in property investing will offer tailored guidance while helping ensure compliance with legal and tax obligations effectively.

Arrange Financing: If your plan involves mortgages as the means for purchasing properties, research lenders who specialise in SPG limited company buy-to-let mortgages. Present detailed business plans and financial projections as proof.

Once the setting for buy-to-let SPV is done and financing has been secured, it is now time to purchase properties under its name.

Responsibilities to Keep in Mind in Setting up SPV for Buy-to-let

Once your buy-to-let SPV is running, here are responsibilities to take care of -

Annual Accounts and HMRC Filing: Your annual accounts should be prepared and filed with both Companies House and HMRC each year. Along with filing an annual tax return and paying any due taxes on behalf of your company. You can simplify this process with Taxd, an online tax software that streamlines your tax filings and ensures accuracy.

Confirmation Statement: Submit an annual confirmation statement to SPV Limited Company House detailing any updates in your company details. Maintain accurate records of your income and expenses relating to property business activities.

Responsibilities of Company Directors: Directors have legal obligations to uphold and act in their company's best interest while remaining solvent.

Conclusion

Establishing a buy-to-let SPV can be an efficient and tax-efficient means of expanding a property portfolio for UK landlords. Although its potential tax efficiencies and asset protection advantages make this an appealing solution, careful consideration must be given to your circumstances, investment goals, and costs before taking this route.

Contact Taxd if you need more guidance on setting up an SPV for buy-to-let.

FAQs

1: Are buy-to-let SPVs suitable for every landlord?

No. This decision depends on many factors, including portfolio size, investment goals, and personal taxes. They are suitable for small landlords who like simple investments.

2. How does mortgage interest relief differ between personal ownership and an SPV?

Personal ownership provides landlords with a 20% tax credit on mortgage interest. SPV ownership allows companies to deduct 100% of mortgage interest as an expense in SPV limited company buy-to-let mortgage. This can save tax for high-rate taxpayers. But, the overall tax effects vary widely.

3: Am I eligible to transfer my existing properties into an SPV?

Yes, you are often able to transfer existing properties into an SPV. This procedure entails selling your property to a limited corporation for market value. While it may provide tax benefits and liability protection, it may also result in Stamp Duty Land Tax and Capital Gains Tax. Existing mortgages may need to be refinanced. Due to the complexities and possible financial repercussions, it is best to contact a tax professional or attorney before starting. The appropriateness is determined by your specific circumstances and investing plan.

4: How does profit extraction work in setting up SPV for buy-to-let?

Some options available to you include: salary is taxed as income, and dividends have lower tax rates. Using both can also significantly reduce overall taxes. Manage company loans carefully.

Tax-effective strategies depend on individual circumstances. Contact us for guidance in developing an optimal approach.

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