Process of setting up an SPV company

An SPV can be formed either as a limited company, trust, or partnership. SPVs have their own balance sheet and are responsible for their own financial reporting, which is separate from the parent company. One can quickly set up an SPV directly on the Companies House website.

Alternatively, an accountant who specialises in SPV accounting procedures can be appointed for the above special purpose vehicles. The information required while creating an SPV are:

• Information about directors and shareholders. At least one director must be appointed and there must be at least one shareholder.
• The company name, along with all details like registered address and director information must be provided.
• The business to be carried out by the SPV must be clearly mentioned in both the MOA (Memorandum of Association) and the AOA (Articles of Association).
• The details of the company secretary (in case one has been appointed by the SPV).
• The details of the shareholding percentage allocated to each shareholder.
• Any shareholder getting more than 25% holding has to be declared as a person with significant control (PSC). Details of all PSCs, such as name, date of birth, address, and years of nationality must be included in the public register.
• An appropriate SIC code must be declared.

What types of shares can an SPV have?

All rules and regulations for a limited company apply to an SPV. Different types of shares can be issued. SPVs can attract independent equity investors and issue shares to raise capital for purchasing debt obligations.

If parent company of the SPV adds any additional capital class of share after the formation of the SPV, the same has to be declared to all shareholders and their consent is needed.

Some SPVs issue alphabet shares (ordinary share A, ordinary share B, and so on). Some SPVs issue different types of shares to pay unequal dividends (this is not advised as all shareholding must be compliant with HMRC regulations). These are some common types of shares issued by an SPV:

• Ordinary shares
• Deferred ordinary shares
• Non-voting ordinary shares
• Redeemable shares
• Preference shares
• Cumulative preference shares
• Redeemable preference shares

Reasons to set up an SPV Company

It is in the best interest of investors to set up an SPV company before purchasing a buy-to-let property. Analysing the financial statements of both the SPV and the parent company is crucial for understanding the financial health and risks involved. If one invests in the property as an individual landlord, the property will be in their name and attract Stamp Duty.

After purchase, if the landlord decides to set up an SPV, they need to sell the property to the SPV they set up which will attract tax bill and a second Stamp Duty.

Many mortgage lenders offer better mortgage rates and terms to SPV companies. One primary reason for this is that underwriting for an SPV company is a simpler process compared to individual landlords.

While choosing an SPV accountant, Kindly ensure you are working with one company with a qualified accountant in London, as there are different disclosure requirements under FRS102 and FRS 105. The separation of balance sheets between the SPV and the parent company helps in safeguarding the parent company’s balance sheet.

Advantages and Disadvantages of an SPV company

Here are the advantages of an SPV company:

• For mortgage lenders, understanding and underwriting an SPV is a simple process.
• Since SPV is a separate legal entity, there is a limited financial risk to its promoter.
• Instead of paying 40% tax on rental profits as an individual landlord, only 19% Corporation tax needs to be paid.
• Shareholders can earn tax-free dividends up to GBP 2000 each.
• Personal income tax liabilities are reduced as all rents and profits are shown under the SPV account books.
• Personal funds need not be used while purchasing new buy-to-let properties as funds from the SPV can be used for the purpose.
• SPV can purchase and hold multiple buy-to-let properties. This greatly reduces many administration hassles and costs.
• An SPV can be closed easily if needed using simple MVL (Members Voluntary Liquidation) procedures.
• Any personal investments into an SPV can be disclosed as a loan. This can easily be drawn back in the form of a tax-free director’s loan.
• As an individual holding the buy-to-let property, one cannot deduct finance costs from rental income. In contrast, an SPV can claim 100% relief on mortgage interest claiming it as allowable expenses. Tax relief is also allowed on repairs and service expenses.
• His Majesty’s Revenue and Customs (HMRC) is dissuaded from showing mortgage interest as an expense when operating as an individual landlord owning buy-to-let properties.
• SPVs help in isolating corporate assets, which can be beneficial for securitizing assets and creating joint ventures.
• SPVs can be structured to meet the specific credit risk preferences of different types of investors.

Here are the disadvantages of an SPV company:

• Mortgage interest rate for an SPV is higher compared to the personal mortgage interest rate.
• Directors of an SPV may be asked to provide personal guarantees by mortgage lenders.
• Stamp Duty Land Tax, Capital Gains Tax, and legal fees may be incurred while transferring individual property into an SPV.
• An individual selling self-owned property gets a capital gains allowance of GBP12,300. An SPV does not get such an allowance.
• Drawing out all the rental profit from an SPV attracts a minimum of 7.5% to a maximum of 32.5% dividend tax or 38.1% additional rate.
• The complexity of managing SPVs can lead to potential misuse in financial scandals and other financial transactions.

Can SPV shares be added/gifted?

SPV shares can be gifted to spouses or children. Transfer of shares to a spouse does not attract Capital Gains Tax. Transferring SPV shares can help in protecting the parent company’s assets by isolating them within the SPV. However, the transfer of shares to children is not exempt. If the consideration of shares is over GBP 1000, a 0.5% stamp duty must be paid.

The option of gifting must be carefully considered as this will add to their liabilities. Children may incur Inheritance Tax. There is also a possibility of a breach of lending terms. All implications must be weighed before a decision to transfer property investment or shares.

What kind of mortgage is available to an SPV?

An SPV can avail commercial mortgage. SPVs can also be used to manage debt obligations by securing better mortgage rates and terms. The objective of setting an SPV is to facilitate tax efficiency. The terms of mortgage available along with Government policies must be studied before setting an SPV. An only tax efficient accountant specialising in SPV can advise and guide effectively.

Special Purpose Vehicles (SPVs) have access to a specific type of mortgage known as a commercial mortgage. This type of mortgage is tailored to suit the unique requirements of SPVs, which are typically used for property investment and development purposes. Commercial mortgages for SPVs are designed to provide financing for properties held within the SPV, allowing for efficient management of the property portfolio.

These mortgages often come with competitive interest rates and favourable repayment terms, making them an attractive option for investors looking to maximise returns on their property investments. It is important for SPVs to work closely with lenders who understand their specific needs and can offer customised mortgage solutions to support their business objectives.

House in multiple occupations (HMO)

HMOs are properties that are let out to unrelated tenants. SPVs help in managing financial risk by isolating the liabilities associated with HMOs. Most mortgage lenders include clauses to exclude HMOs. In contrast, lenders prefer SPV. The reason is that they can consider the credit history and financial standing of the company directors and the viability of the property before lending. In many cases, directors may be asked to give a personal guarantee.

Why use our SPV Company services?

We are a team of experienced property accountants and property tax experts who specialise in all aspects of accounting, taxation, and legal matters concerning Special Purpose Vehicle Company. We also specialize in financial reporting for SPVs, ensuring compliance with all HMRC regulations.

Additionally, we are compliant with all HMRC regulations and policies. We have successfully worked with several landlords and property owners to transition property business from individually owned buy-to-let properties to SPV-owned properties.

Several years of experience puts us in a vantage position to guide our clients with successful SPV operations.

Moreover, we use the latest technology and software to ensure that everything is accessible digitally to our clients online. With us by your side, you can relax about your new SPV is set-up and functioning.