A Special Purpose Vehicle (SPV) is set up to be a tax-efficient way for landlords holding a portfolio of buy-to-let properties. The term SPV is a mortgage industry term for a limited company specifically set up to buy and rent properties.
Lenders are prepared to lend to a newly formed SPV limited company as you will need to give a personal guarantee. You are still underwritten just like a personal name BTL application.
Is a Limited Company the Answer?
Broadly speaking, it comes down to 2 areas:
Taxation – with personal name ownership, the gross rental income is added to your earned income, if you earn over £50,000, you will pay 40% tax on the rental income.
With limited company ownership, you will currently pay 19% corporation tax on the company profits.
Rental Coverage – Compared to personal name ownership, rental coverage is a lot more relaxed which allows landlords to borrow more money for the same monthly rental income.
There is also the potential to sell your existing residential property to your SPV to save stamp duty on your future residential purchases, please read our blog & find out more on this area.
Taxation
- With limited company ownership, you currently pay 19% corporation tax on the company profits.
- With limited company ownership, you can offset expenses against the profit.
- Landlords tend to let the profit roll up inside the SPV to fund the deposit for the next buy-to-let purchase.
- Landlords can utilise a £2000 tax-free dividend allowance.
- Money deposited into the limited company to fund purchases can be treated as a director’s loan. Rather than take dividends, you would first pay yourself back tax-free for the director’s loan.
- You can sell buy-to-lets owned in your personal name to your SPV. Lenders will accept equity in the property as the deposit.
- If you are self-employed and trade via a limited company, there is the option to fund the buy-to-let deposit via an inter-company loan to the SPV.
- Add on adult sons/daughters as a shareholder to utilise their dividend allowance.
Rental Coverage
Based on borrowing £300,000 (75% loan-to-value) on an interest-only basis, the following rents are required to match lending criteria:
Personal name ownership
Fixed/discounted rates less than 5 years
145% at 5.50% = £1993.75 monthly rent required
Fixed rate for 5 years
145% at 5.00% = £1812.50 monthly rent required
SPV/Ltd Co ownership
Fixed rate/discounted rates less than 5 years
125% at 5.5% = £1718.75 monthly rent required
Fixed rates for 5 years
125% at 3.4% = £1062.50 monthly rent required
As you can see, rental coverage for limited company ownership is a lot more relaxed. This allows you to borrow more money for the same monthly rental income compared to personal name ownership. This allows landlords to purchase properties that offer lower rental income but the potential for greater capital appreciation (London, South East etc).
How to form a Limited Company/SPV
The company must be incorporated specifying the appropriate SIC codes:
- 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.
You have 3 options:
- Complete a registration with Companies House.
- Instruct your accountant to arrange.
- Use a company formation website; a popular choice is Companies Made Simple.
Buy-to-Let properties can also be bought by an existing trading company but the choice of lenders is more restricted and the interest rates are significantly higher.
New Products
As the limited company BTL market has matured, there are now lenders who offer more specialist products via an SPV:
- Airbnb/Short Let Mortgages – See our Airbnb Mortgage blog for the latest criteria.
- Ex-pat.
- Refurbishment buy-to-let.
- Inter-family sale.
- Multi-unit block.
- HMOs.
- Day 1 Remortgage.
- Products with no early repayment charge.
- Trading Company.
Directors/Shareholders
You can have up to four applicants on one mortgage application. I recommend you take advice on the percentage shareholding allocated to each applicant/director.
With regards to lenders, all directors are underwritten but not all shareholders are. Dependent on lender, a shareholder can own up to 24% without being underwritten. This is useful where a shareholder is required to fund deposit but is not interested in the running of the company.
New Company Bank Account
Remember to open a new current business bank account in your new company’s name. Lenders will not issue a mortgage offer without this. Some lenders will expect you evidence your new account via an opening statement.
Incorporation Relief
You cannot transfer a buy-to-let in your personal name into an SPV. There is a change of ownership from yourself to the SPV. It will be treated as a purchase and you will be liable for stamp duty and legal costs.
Lenders will treat the equity as a full deposit.
You may benefit from Incorporation Relief S162.
Why Use Neil Soundy Financial Services For Your Mortgage Advice?
- We are experts in SPV / Ltd Co lending.
- Your initial consultation is free with no obligation
What Our Clients Say
What you see is what you get with Neil Soundy FS! Very professional, very experienced and always on time. Securing mortgages on 2 properties simultaneously using SPV was unbelievable and amazing. We would always recommend Jake, a man that knows his onions, very brilliant at his job!
F Babarinde
How Much Will It Cost Me For Your Advice?
A fee of £495 is payable on completion of the mortgage and Neil Soundy Financial Services Ltd will keep the commission received from the lender for arranging the mortgage.
Neil Soundy Financial Services Ltd is an appointed representative of HL Partnership Ltd which is authorised and regulated by the Financial Services Authority.
We do not give or imply legal or taxation advice. We recommend you contact a solicitor or account for advice in these areas
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
