What are SPVs and how can they help landlords?

SPVs or Special Purpose Vehicles are companies that are set up for the sole purpose of purchasing, holding or letting out properties and nothing else. So, if you are a landlord who is looking to set up a limited company for tax purposes, it might be a preferable option to setting up a trading company.

One reason why you may choose to expand your property portfolio using an SPV is that instead of paying income tax as an individual, SPVs pay corporation tax at a current rate of between 19% – 25%, which when contrasted to the higher rate of income tax of 40%, can lead to a substantial saving. One feature in favour of SPV’s is that companies are exempt from section 24 of the 2015 Finance Act, which means that under a limited company, your mortgage interest is an allowable expense which can reduce your taxable profits. For those of you who are higher rate taxpayers, having your portfolio in an SPV would generally be a better option as the current finance cost relief under section 24 is capped at 20%.

SPV’s would also allow you to have easier access to mortgages for your property portfolio when contrasted with a normal trading company, which would allow you to quickly expand your property portfolio. This is because all the income and liabilities tied to an SPV are related to their properties, which makes it far easier for lenders to assess whether the SPV can cover the mortgage repayments and other fees. Other trading companies have an increased risk to their income and liabilities which means that more mortgage products are available to SPVs than other limited companies.

If you currently own a rental property, you can transfer it to an SPV, however this is rarely economically viable unless you are looking to actively grow your portfolio. This is because you’ll need to sell the property to the SPV, which incurs Capital Gains Tax personally, and the SPV will need to pay Stamp Duty Land Tax. Although this may seem substantial, there are reliefs you may be eligible for which may reduce this liability and in the long-term, allow SPVs to be a viable option for your property portfolio.

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