A Special Purpose Vehicle (SPV) is a subsidiary of a company purely set up to isolate financial risk from its parent company. SPV limited companies are usually set up by landlords moving away from a 'buy-to-let' business.
In this article
Why choose an SPV?
Typically landlords will set up an SPV. Ever since The Chancellor announced plans in 2015 to cut landlord tax relief, the higher-rate taxpayers who own buy-to-let properties will pay more tax. And because of this, increasingly, SPVs are set up by landlords moving away from the buy-to-let business to limited companies.
Other benefits include:
- Paying corporation tax on a limited company (which will be 18% by 2020) could be more beneficial than paying income tax on the property without the tax relief
- Protection of funds and assets
- Personal mortgage deposits can be withdrawn from the limited company by a directors loan (no tax liability)
Implications of an SPV
An SPV is subject to capital gains tax and stamp duty.
Also, if you dissolve the company, you could be faced with a double tax - currently 20% of profits within the company and then when money is withdrawn from the company.
It's also important to note, SPVs have legal obligations of a limited company and also are subject to strict guidelines from the Financial Reporting Council (FRC).
Set up an SPV
SPVs can be set up as trusts, partnerships, or more commonly as a limited company. It will take a few minutes to fill out the company registration, and you can have the company incorporated within 3 working hours. You need a minimum of one director and one shareholder.
You must use ALL 4 of the following SIC codes (please see: what is a SIC code?) relating to letting property:
68100 – Buying & sell own real estate
68201 – Renting & operating of housing association real estate
68209 – Other letting & operating of own or leased real estate
68320 – Management of real estate on a fee or contract basis
( Condensed SIC List: Section L - Real estate activities)
You will need to enter the above SIC codes in the designated SIC Code page of your company registration:
Alternatively, you can add the SIC codes by filing the confirmation statement after your company's incorporation.
Other things to consider:
Depending on the company, you may be required to include 'objects clauses' to the Articles and some extra words may need to be added - you may need to receive professional advice for this.
Because the SPV is structured as a limited company, it will have legal obligations of a limited company, eg, confirmation statements and annual accounts, and tax return every year.
This article is a guideline only. If professional advice is needed, please speak to an accountant or a business advisor - such as Westbury Chartered Accountants.