An SPV limited company, or a special purpose vehicle company, is a type of limited company this is set up for the sole purpose of owning and managing property, more specifically it’s usually for Buy To Let (BTL) properties.
An SPV limited company is commonly set up and used because it tends to be more tax efficient than owning and letting a company as a private investor or a sole trader, which needs to be done through self-assessment.
Accountancy is also a large part of these types of investments as getting good advice from an accountant often leads our clients towards considering this type of product and this type of arrangement. It also tends to be the case that as our clients become more experienced and expand their portfolios that they then look into creating these types of financial arrangements.
Originally quite a niche product, SPVs have become increasingly popular recently with many mortgage lenders and finance companies now happy to lend to SPVs and in some cases actually preferring an SPV company rather than individuals.
SPVs can be used for a range of things, such as handling the transfer of an asset or a loan from company to another. In this context, however, an SPV limited company is used to purchase property and, more specifically, to obtain a mortgage or lending as a corporate entity rather than as an individual.
You can set up an SPV through your accounts, solicitors or by simply paying £12 and registering through the companies house website.
What is a SPV?
An SPV is simply a way of using a limited company to purchase, manage and operate a property portfolio as opposed to doing this yourself. Most of our clients use this type of LTD company because it tends to make things more tax efficient and many mortgage and finance providers now offer products for them and, in some cases, prefer to deal with them.
What does SPV stand for?
SPV stands for Special Purpose Vehicle and this indicates that the company is used for a special and specific purpose which, in this context, is for the purchase and management of property or a property portfolio with a number of different developments being kept under one portfolio.
Setting up an SPV company
An SPV limited company is really easy to set up and no more complicated than setting up a standard limited company. You can instruct your solicitor or accountant to do this for you or you can do this yourself through the companies house website at a cost of £12.
As with a normal limited company you’ll need to appoint a director and you will be given the relevant reference numbers and you’ll need to register an address for the company. It can be called whatever you want it to be, but for the purpose of getting lending the purpose of the limited company should be nothing other than the ownership and management of property.
What is a SPV limited company SIC code?
The Standard Industrial Classification of Economic Activities (SIC) is used to classify businesses depending on what type of activity they engage in, in this case it will likely be property and Buy To Let (BTL)
Examples include
- 68100 Buying and selling of own real estate
- 68209 Other letting and operating of own or leased real estate
- 68320 Management of real estate on a fee or contract basis
SPV vs limited company
Setting up an SPV limited company rather than a standard limited company has its advantages and many lenders consider an SPV to be less risky than lending to a standard limited company because the SPV has a specific and specialist reason to exist rather than, say, a manufacturer who wanted to borrow money to buy their commercial premises.
In the scenario where the standard limited company, say the manufacturer, wanted to borrow the money as a standard limited company, there is an increased chance that the limited company could go bust and be unable to repay the money that they’d agreed, whereas if that manufacturer were to create a specific SPV just to borrow money against commercial property and manage it, that chance is reduced.
Tax Benefits of an SPV company
One of the main reasons that our clients tend to create an SPV is that it tends to be more tax efficient when they’ve got a property portfolio rather than having to declare their income and tax through self-assessment or as a sole trader.
Personal tax liability
One of the benefits of an SPV rather than a ltd company is that if you use a standard company rather than an SPV company, this can have implications for your personal tax if you make a profit or income from a standard company, whereas with an SPV it’s much easier to simplify things and ensure that your personal tax liability isn’t affected.
More likely to be accepted
Another benefit is that lenders and mortgage providers are much more likely to offer you finance as an SPV company rather than a standard company. This is because your specialist company is designed specifically to manage properties and as such is seen as less risky.
This can also then be relevant when it comes to declaring taxes as you’re not personally borrowing the money.
Specialist lending
Using an SPV broadens your horizons in terms of what type of specialist property lending you’re eligible for. For a start, many companies now actively seek out this type of company to lend to due to risk factors, but also a finance company that lends to an SPV is more likely to have the experience and knowledge to cater to your needs. These types of property company lenders are also more likely to be able to make your lending tax efficient.
Disadvantages
Setting up this type of company can also have its disadvantages too, and often it requires experienced property contractors and people with good knowledge of the tax implications to make the most of it.
Complexity
Setting up this type of umbrella property arrangement can be quite complex and the best piece of advice if you’re considering it is to seek advice from somebody with experience who can talk you through the process. Using this type of arrangement for an investment property can cause other issues if you have other businesses so we recommend speaking to a broker.
Property income
Using this type of vehicle for a property investor is often a good idea but it’s worth keeping in mind that you can’t use it for anything else other than the management of property. The income and outgoings through this vehicle can only be related to the properties within it and misuse of this type of business can cause you problems.
Specific finance terms
Using an umbrella company is preferrable when it comes to tax implications, however, the terms of any mortgage or finance arrangement will follow quite narrow terms that you’re unable to deviate from. For example, if you have an existing umbrella arrangement in place that used to deal with anything other than property you will have to prove that you only intend to use it for property in the future.
Speak to our team to learn more about property financing
For property finance and services, we’ve got years of experience in the industry and the market and although these arrangements can be complex we can help you package together your application and your business arrangements to make the process as simple as possible.
For a property investor this process can take up huge amounts of time and resources if you were to approach lenders separately, whereas we have a large panel of experienced lenders whom we have a great working relationship that allows us to offer exclusive rates and deals to our clients.
We can help you from start to finish and ensure that your application is the best it can be to ensure that our panel will lend to you, whether that’s for a specialist vehicle or for an individual or for a standard outfit.
We can provide advice about which may be the best option for you and also help you out with other products that may suit you. We can advise on tax implications as well as tax efficiency and help you to understand the lending market better.
Our lenders have funded millions of pounds worth of development across the UK over the years and have the specific financial experience to help you with your investment and your property portfolio too.
Our team of brokers are waiting to give you the best possible advice for you and your project so why not get in touch today.