A Special Purchase Vehicle is a type of limited company which is set up solely for the purpose of holding property and carrying out buy-to-let activities. Like a Limited Company it is a separate legal entity, with its own assets and liabilities.
Any property held by a SPV and its associated mortgages will belong to the company, whereas an individual investing in a buy-to-let mortgage will hold this in their own name, with their personal assets at risk if there is any default of payment.
It’s a popular option with those wishing to build their buy-to-let portfolio too, as multiple properties can be held under one SPV.
Banks and SPVs
One of the most common reasons to create a SPV is as a form of security for a mortgage or loan. Lenders can prefer SPVs to limited companies because they are quicker and simpler to understand and underwrite.
With mortgage-backed securities, the bank can separate loans from any other obligations it has by creating a SPV, allowing investors to receive any monetary benefits before any other debtors or stakeholders.
Where property developers want to secure finance for additional projects, a SPV is commonly used as it can be used on one project only, and therefore represents less risk and liability for lenders.
Tax Efficiency and Other Advantages of a SPV
There are various advantages to purchasing a property through a SPV:
- You can reduce your potential tax liability as you are able to control how much income is taken out of the company.
- You can grow your buy-to-let portfolio quickly through a SPV - multiple properties can be added into one portfolio, allowing you to build a portfolio within one entity, reducing both administrative and ongoing costs.
- As the company owns the property it’s fairly easy to change the shareholders. This is useful if you plan to gift property to a family member, and could help beneficiaries save money on inheritance tax if they are added as shareholders.
- With a buy-to-let under a limited company, you only need to pay the lower rate of corporation tax (19% as of 2020/12) on the rental profits and on any gains from selling property.
- If you wish to transfer an asset to a SPV, there will be capital gains tax to pay but it will still be at the corporation tax rate.
- Stamp duty savings through a SPV sale can be significant - selling shares in a SPV may be a better option than selling the property itself as it avoids property conveyancing issues and associated costs, including stamp duty. You are just changing ownership of shares here, and the property continues to be owned by the company.
- You can use existing capital within a SPV to reuse in the purchase of another buy-to-let property, and if you make a personal investment into a SPV as a loan, you can draw it back out as a tax-free director’s loan.
It might not be the best solution for everyone, and you should seek professional advice to ascertain if a SPV is the best option for your purposes.