Property Investment Finance

When you decide to buy a property for investment purposes one of your first and foremost considerations should be whether, to place your investment property within a Special Purpose Vehicle (SPV).

SPV’s are limited companies which can be used to purchase your investment property or, move your investment properties in to, at a time of your choosing.

It’s pretty much just like buy a company and running a business through the company! Many property owners are opting to either place their investment properties in a SPV or purchasing their investment properties using a SPV. New tax laws have pushed investors to utilise SPV’s as they are more tax efficient than owning your investment property in your personal name.

SPV: The good, the bad & the ugly!

Here we will endeavour to give you an insight so, you can make an informed decision.

If you hold your investment property in your personal name you are subject to income tax which could go as high as 45%. This change will not affect your SPV, as mentioned above a SPV works just like running company therefore top rate tax payers would only be applicable to pay lower taxes than the tax on your individual income.

No tax is payable on dividends of up to £5k – as of Apr ‘16, the Dividend Tax Credit will be substituted by a new tax-free Dividend Allowance of £5k. This means you can conceivably take a tax-free dividend income of up to £5k from your investment properties.

Income won’t be payable when reinvesting profit to purchase more investment properties, thus building up your BTL portfolio will be faster and potentially easier within a limited company. Where we see no income tax due on profit, we can realise more cash for reinvestment. Even though corporation tax is applicable on trading profits, notably 20% which is reducing to 18% by 2020, this is still substantially lower than the higher tax rate which is currently at 40%.

Corporation tax is imposed on SPV’s, you are essentially renting out your investment property and making profit, which makes corporation tax applicable. Gains made by the SPV are subject to 19% on disposal currently.

Interest which is accrued from your mortgage can also be declared in the same way you would declare a company expense; landlords can potentially avoid taxes imposed on individual investors.

As with any business you can also place funds into the SPV and withdraw them by if and, when the need should arise by way of Directors Loan. It’s quite transparent now that SPV’s are just the same as running a business within a limited company structure, so it fair to note that there will be administration costs, accountants may also charge more for their services to Limited companies.

It is also quite relevant to note that not all lenders offer mortgages to limited companies however, as the trend of placing investment properties in SPV’s grows, more lenders are starting make products available. Lenders that do provide products have been a little stringent in their criteria in recent times, some lenders have for example needed the director to own no less then 80% of the shares. Lenders may even ask for the company directors to give signed personal guarantees.

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