What is a Limited Company Buy to Let – Special Purpose Vehicle (SPV)?

A Limited Company, (SPV), is set up as a tax-efficient way of landlords holding a portfolio of buy-to-let properties.

The term Special Purpose Vehicle, or (SPV), is a mortgage industry term for this type of company specifically set up to buy and rent properties only and carry out no other type of trading.

Should you set up a Limited Company SPV for your buy to let purchases?

The most traditional way of purchasing a buy to let property is in your sole name; However, after changes to the tax laws in 2020 you can no longer deduct the mortgage interest payments at source, and this has meant some landlords have had to pay more tax than they previously did.

Buying properties within a limited company SPV can be more tax efficient and are becoming more popular now with landlords for their flexibility in holding property as an asset

Why should I get tax advice?

Before deciding on starting a limited company for your Buy to Let you should receive tax advice from a relevant Property Tax Specialist Accountant.

The reason for this is there are various advantages, and disadvantages, to consider, and everyone’s personal tax liability will be different, so it is essential you receive personal advice to make the right decision going forward:

Some advantages include:

  • More advantageous tax breaks for mortgage interest relief since the change in tax laws – The tax implications are complicated depending on whether and how you earn other income.
  • Currently able to utilise £2,000 tax-free dividend allowance
  • Ability to add adult son/daughter as a shareholder of the company to utilise their dividend allowance and/or for them to inherit the assets in the future
  • Ability to retain the net profit within the company and utilise it to fund additional property purchases, without suffering income tax on the retained amount.

Some disadvantages include:

  • Current tax rules are not set in stone and are susceptible to change which could affect these being as tax efficient in the future
  • Not all mortgage lenders accept buy to let mortgages being purchased within a limited company so you will not be able to apply to all mainstream lenders. You may also pay a higher rate for the mortgage if purchasing within a limited company than in your sole name
  • More paperwork is involved with Limited Company, and you will have to file annual accounts each year
  • Legal costs will be higher when purchasing within a Limited Company. You will also be required to provide a personal written guarantee to the lender should the company cease trading. There may be an additional cost for this.
  • You will need to open and run a separate business bank account for the Limited Company

Next time:  Setting up a limited company and its structure; and how mortgages rates, fees and deposits may be affected

Veracity Financial Planning does not give tax advice, we strongly recommend that you contact a suitably qualified accountant to ensure you comply with HMRC regulations.

Why choose Veracity?

Here at Veracity, we can secure finance for most scenarios, including commercialsemi-commercialregulated and unregulated bridging loanshigh-value residential mortgages and Buy to let mortgages. We have an unrestricted network of high-street, specialist and private lenders who can offer our clients the best deals on the market.

We will negotiate terms and rate for your finance needs, in some cases, lenders will offer us bespoke deals for our clients depending on the type of deal and the individual’s circumstances. Our advisers will work with you to find the most appropriate deals and explain to you any potential risks involved as well as the benefits.

Your adviser will work on your behalf to submit any necessary paperwork needed to apply for the chosen deal and ensure any of your questions are answered in a timely manner.

To find out more about Limited Company Buy to Lets and get in touch with our advisers, click here.

ABOUT THE AUTHOR

Picture of Woody Snapper

Woody Snapper

Woody works with individuals and business' looking for corporate finance, high net worth mortgages, complex loans, bridging loans and development finance.

To contact Woody.

Tel: 07922 413586

or

Email: woody@veracityfp.co.uk