What is a limited company property SPV?
SPV (Special Purpose Vehicle) is an increasingly popular way to invest in property. An SPV is a limited company, usually with the SIC codes specified below, with shareholders and board of directors. The essential difference between individual ownership and the SPV is in the way the property is administered.
How Property SPV works?
In the SPV, the property is registered in the name of the company rather than the individual. The buy-to-let or commercial property will be owned by the limited company and not their directors.
The SPV limited company has the same obligation as any other one, e.i. needs to file annual accounts, pay corporation tax and submit an annual confirmation statement.
The biggest advantage of owning the property through SPV is that the company can deduct the mortgage interest and other costs from the company income and pay corporation tax of 19% only on profits. The company directors will be able to draw dividends taxed at 7.5/32.5/38.1 per cent but can decide if and when to distribute dividends. This could allow the shareholders to extract profits to suit their needs and keep the tax liability low.
In comparison, if the individual owns the property, they would need to pay 20/40/45 per cent income tax on the rental income. From the tax year 2020/21 there is no tax relief on the mortgage interest but landlords will receive a 20% tax credit based on the interest paid. These recent changes to the law affected higher- and additional rate taxpayers since the tax credit is restricted to 20%. The individual investor is allowed to deduct the actual costs of replacing furnishing but not annualised wear and tear costs.
Holding property in the SPV means that the property can be sold or transferred by selling or transferring the ownership of the limited company.
Can I move my BTL property to SPV?
Yes, but there are caveats. Firstly, you will have to sell the property to the SPV and the SPV will have to pay Stamp Duty Land Tax (including the 3% surcharge). Secondly, if you sell the property with profits, you will be liable to the Capital Gains Tax, currently 18% (or 28% if you are a higher or additional taxpayer).
Can I get a mortgage through SPV?
Yes, there are many mortgage deals available to limited companies. Some lenders are prepared to lend up to £5m for a single property, with exposure up to £25m. The general rule is that the SPV will need at least a 25% deposit and the rest of the purchase price can be raised through the mortgage. Please note that most lenders will need to establish ultimate beneficial owners, especially when the SPV is owned by another limited company. There also might be personal guarantees required, typically at 25% of the value of the loan.
Do I need an accountant?
You might benefit from having an accountant. As a director of a limited company, you will need to file company accounts with HMRC and personal self-assessment tax returns. Please note that if you own the property in your name and do not record the rental income on the tax self-assessment, you might have a problem remortgaging the property.
SIC Codes typically used for SPV
- 68100 Buying and selling of own real estate
- 68209, Other letting and operating of own or leased real estate