Our buy to let limited company solicitors guide to help you purchase a buy-to-let property using an SPV Company (Special Purpose Vehicle)

Our guide for buy-to-let landlords looking to use a special purpose vehicle (SPV Company ) to purchase their next property

What is an SPV in Property?

At Starck Uberoi we understand your desire to create a solid buy-to-let portfolio and want our clients to achieve this in the simplest and most tax efficient manner. As a buy-to-let landlord using a special purpose vehicle (SPV Company) will help you obtain finance for your projects. The SPV Company presents fewer risks and liabilities for the lenders so they can present you with greater access to a wider range of mortgage products. Our buy to let conveyancing solicitors have a wealth of knowledge about the optimal ways in which to organize a buy-to-let portfolio and are available to offer you their expert advice. Would you like to know more about the buy to let conveyancing process? Take a look at purchasing of buy to let property

What is a Special Purpose Vehicle or SPV Company ?

A special purpose vehicle is a legal entity, often a limited company, which has been established for a specific purpose. It is created by a parent company or an individual to isolate financial risk when purchasing a property. In the property sector the term special purpose vehicle is given to a limited company specifically set up to buy and rent properties. As a distinct company, with its own assets and liabilities, it maintains its own legal status. With this clearly separate position the company can make its obligations secure, even if the parent company goes bankrupt the SPV Company can still carry on functioning. This is because the operations of the entity are restricted to the purchase and financing of specific assets or projects.

What is the benefit of a Special Purpose Vehicle or SPV Company?

Special purpose vehicles are set up to be a tax-efficient way of landlords holding a portfolio of buy-to-let properties now that the changes to tax relief on finance costs for individual landlords have been phased in. Individual landlords are no longer able to reclaim tax on mortgage interest. Special Purpose vehicle buy-to-lets often find that lenders will offer more lenient rental coverage. Some key reasons to use a special purpose vehicle include:

• Risk isolation – As a separate legal entity, an investor is able to isolate that property from the other assets and liabilities of the investor. This significantly lowers the risk as it is less affected by external factors.
• Flexible structure – The SPV company offer investors a flexible corporate structure for raising capital and regulating the activities of a group of investors who own a property. An SPV is able to raise capital by issuing shares. These multiple share classes can be created to regulate the rights of investors to profits and varied level of control over the SPV.
• Ease of asset transfer – using a special purpose vehicle the property and contracts can be sold in a self-contained vehicle instead of requiring the seller to separately assign numerous contracts, such as lease, licences and permits, to a buyer following a sale.
• Buy to let lenders – offering mortgages to corporate vehicles mostly prefer an SPV Company to trading limited companies because they are easier and quicker to understand and underwrite and are perceived as being lower risk.

How can I set up an SPV Company?

The process of setting up a special purpose vehicle is very simple and is no different to setting up any other company. As a well-established firm we have strong connections to accountants and so if you need assistance in your first steps to setting up a special purpose vehicle then we can point you in the right direction. We can work with the accountants to ensure the company is set up correctly. The extensive knowledge of our solicitors means you can rest assured that the limited company will be valid and successful in its purpose.

Limited Company Conveyancing

If you own property in your personal name and transfer it to your Limited company at a significant undervalue or for no consideration, you are liable to pay stamp duty on the market value of the property as opposed to the undervalue. For example, you own a property that has a market value of £200,000 and transfer it to a company that you are connected to. The company only pays £100,000 for the property, which is below the market value for the property. Even though the company has received the property at an undervalue, they must pay the same amount of Stamp Duty as though you had transferred the company in exchange for £200,000. This rule applies in either of the following situations:

• The person who transfers the property is ‘connected’ with the company

OR

• The seller is connected to the company and the company uses shares in the company to pay for the property

However, these rules do NOT apply if you are NOT a connected person. For more information on the rules about a connected party, please consult the HMRC website.

Claiming Tax Relief on Mortgage Interest

One of the main reasons people choose to purchase a property in a limited company is because you are no longer able to claim mortgage interest tax relief if the property is held in the landlord’s personal name, following the changes implemented after 2016. Landlords who own a property and declare rental income through a limited company are still able to reclaim tax on their mortgage interest payments. This tax relief could help you save thousands.

How Starck Uberoi can help

Our buy to let conveyancing solicitors have vast experience helping people buy property in a limited company. Our in-house mortgage advisors can arrange mortgages for those buying a buy to let property in a limited company. For more information, please visit our mortgage or Conveyancing pages, or to book an appointment please call 020 8840 6640.

Our conveyancing solicitors in Brentford act for buyers and sellers across west London, as do our conveyancing solicitors in Ealing. We also handle property work from our Belgravia office, our conveyancing solicitors in Pinner, our Richmond office and our Canterbury office.

We can also provide a professional Notary Public service at all our offices. For an appointment at any of our offices, email us at solicitor@starckuberoi.co.uk or call 0208 840 6640.