How to Set Up an SPV Ltd. Company .

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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?

spv limited company for buy to lets property investorsAn 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.

 

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Shiraz Khan
Stay informed with the latest news, market trends, and expert guidance on bridging loans, development finance, and UK real estate investment. Our blog is here to support your property journey with clear, practical advice.
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Frequently Asked Questions

You may have heard about bridging loans in the context of property investment or moving house, but what exactly are they? Basically, bridging finance is a type of short-term loan that allows a buyer to purchase a property before their existing home or investment property is sold. As the name suggests, it ‘bridges’ the funding gap in the lag between purchase and sale – offering rapid access to the necessary purchase funds for a brief period of time.

Borrowers can access from £5,000 to £250 million, depending on applicant status, the value of the property and other lender criteria. Higher lending amounts are typically reserved for borrowers who can put up several properties as security. Quotes are provided on a Loan to Value (LTV) of 65%-80% in most situations.

Bridging loans can be used in a number of situations. For example:

  1. When people are moving home in a chain, with a gap between completion dates (e.g. needing to pay for the new property before receiving funds on the completed old property).
  2. When property investors or private buyers renovate a home and want a rapid sell-on.
  3. When an individual is looking to buy a property at an auction.
  4. When property investors and developers are looking to pay a tax bill
  5. When buyers want to secure finance against an uninhabitable property.

This type of finance can be used by homeowners, landlords and property developers alike.

The bridging finance market has grown rapidly, with a number of small and focused lenders now on the market, catering for specialist property finance needs. The market has changed because large high-street lenders have become less willing (and sometimes less able) to lend ever since the financial crisis of 2008.

As to whether a bridging loan for property development, auction purchase or private home buying is a good idea, it depends on a variety of factors. Bridging loan requirements vary by lender, but each will have certain common features that need to be considered.

The most notable feature of this type of finance is that the interest rate is likely to be high. At the same time, there are typically high administration fees applied to the loan. Because of this, it is essential to proceed very carefully and with a full view of the facts. Borrowers have been burned by this type of loan in the past, in instances where transactions have fallen through, or where lenders have turned out to be unscrupulous and untrustworthy.

Benefits of instant bridging loans

1. Rapid access to money
2. Ability to borrow large sums – often up to £250 million depending on applicant status
3. Options for flexible borrowing.

Possible downsides of bridging loans:

1. Failure to understand the unique features of these loans can result in financial risk
2. Bridging finance is secured against your property; meaning it can be sold if you can’t meet the repayment terms
3. A costly option with fees and higher interest

Bridging finance interest rates will vary by lender. However, interest costs of 1.5% a month are not unusual, which can equate to an annual percentage rate of 18%.

Bridging loans may have fixed or variable interest rate features. Fixed interest rates are ideal for customers who want stability, as they offer the same amount of interest for the duration of the term. The rate is pre-agreed, but there may be a premium for this security.

The other choice is to have a variable rate bridging loan which can change with the base rate. However, you can save money if the base rate decreases. Borrowers who are less concerned about security sometimes prefer the variable rate option if they believe that the financial markets will travel in their favour. Knowledge and market insight is required here, along with a thorough understanding of personal risk tolerance. If interest rates appear to be rising, most customers will choose the fixed interest rate to lock it in and avoid further increases in the event of a base rate rise.

Bridging loan periods tend to be for several months and there are usually different options for paying the interest portion.

Monthly repayments

The customer repays the interest every month as a separate payment, rather than adding it to the outstanding balance

Rolled-up bridging finance deals

The compound interest is calculated monthly but added to the outstanding loan balance and paid together when repayment is due.

Retained interest

The monthly interest payment due is covered up to a predefined date so that the full sum is only repaid when monies are due.

As well as interest payments, there will be an arrangement fee for the set-up of the bridging loan, which is usually around 1-2%. A repayment fee for exit paperwork may also apply, along with valuation fees for the cost of the surveyor.

Remember, this type of finance is designed to be short-term. As soon as it extends beyond the agreed interim or bridging period, penalties can rapidly stack up. Typically, bridging finance is available for 1 – 18 months.

Yes, there are two broad types: closed bridging finance and open bridging finance.

With closed bridging finance you will tell the lender how you will repay the loan – with what funds and when. These loans usually complete within a few months and the clear exit plan is required as a lending condition.

Open bridge finance won’t usually need this type of exit plan, and it is typically the loan of choice when funds are needed urgently to complete a property transaction. No detailed plan is needed to explain how the debt will be settled, and the finance tends to be offered for up to a year. Of course, it’s important to note that interest will keep being applied throughout this period.

There are also first charge bridging loans and second charge bridging loans.

If you have a loan against a property which is already mortgaged, you’d take out a second charge loan. An example of this would be if you were planning to finance a property extension to improve the property. The categorisation tells the lenders who will have legal priority for repayment if the loan was unable to be paid off at the term-end.

First charge loans apply if the new loan is the first secured on the property.

Bridging loan requirements will depend on the lender. Often, lenders will require that:

Customers must also take out their property mortgage with them too, providing the bridge finance as an interim measure before the standard mortgage comes into play.

Property is put forward as security against the loan. Some lenders expect applicants to have more than one property in order to be eligible for their bridging finance products, but this will depend on the lender and the size of the loan.

Applicants show proof of income – although, interestingly, as loan interest isn’t repaid monthly, some lenders do not request this.

The applicant shows evidence of their property investment track record if they are planning to develop their purchased property.

The applicant can show a business plan if they are using the bridging loan for commercial purposes.

Development loans are another type of short-term property development loan. They are repaid in stages and calculated on the gross value of the development. Personal loans are another option, as are remortgages when timescales are more flexible and a long-term loan is desirable.

Use a bridge loan calculator
Ask for your lender to provide a tailored bridge finance example or illustration around your particular borrowing needs.
Think carefully about the type of bridging loan that you need – whether open bridge finance or closed bridge finance.
Know whether the loan is a first or second charge type.
Clarify whether the interest rate is fixed or variable.
Review products from several lenders.
Be clear on your security.
Read the small print!

Bridging loans are offered by banks, building societies, specialist lenders and brokers. They aren’t widely advertised and usually require a direct application by the customer to find out the product features and offers.

Once you have made an application, a decision will usually be made within 24 hours. The funds then will take around two weeks to be issued, including time for checks to be carried out, the valuation and the actual transfer.

Hank Zarihs are highly experienced and specialist financial intermediaries operating in the property development market. We work with a tried and tested panel of over 60 trusted lenders and can provide excellent bridging finance with attractive features. Contact us to find out more.

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Shiraz Khan linkden

Managing Director

Shiraz Khan is the author of the content. Shiraz is the managing director and founder of Hank Zarihs Associates. With over 16 years’ of experience we are master brokers within the short term financing industry. We specialise in a wide variety of short term loans.

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