What Is an SPV and How Can It Boost Your Property Investment Returns?

WHY SMART INVESTORS ARE BUYING PROPERTY AS A COMPANY

London has long been a global hotspot for real estate investment – particularly for international investors – and this shows no signs of changing.

When it comes to your investment, it is important to make use of strategic planning to maximise returns while also minimising risks.

Using a company structure, such as setting up a Special Purpose Vehicle (SPV), is a smart approach for investors. If you are wondering “what is an SPV in real estate”, read on to find out more about the benefits of setting up a dedicated company for your investments.

WHAT IS AN SPV COMPANY AND HOW DOES IT WORK?

A Special Purpose Vehicle – or SPV – is a company that is created specifically to own and manage a property or multiple properties.

An SPV acts as a dedicated “container” for your property investment, keeping it separate from your personal finances or other business activities.

Whether buying luxury London apartments or large commercial properties, an SPV is popular among smart investors in the UK property market.

WHAT IS AN SPV IN PROPERTY AND HOW DOES IT IMPROVE TAX EFFICIENCY?

In a property investment setting, an SPV makes it easier to manage and reduce taxes and creates a clear structure for managing multiple properties:

1. LOWER TAX ON RENTAL INCOME OR CAPITAL GAINS TAXProfits are taxed at the UK corporation tax rate, which is often lower than the higher rates of income tax that wealthy individual investors might pay.
2. DEDUCT ALLOWABLE EXPENSES FROM TAXABLE PROFITSYou may be able to deduct certain costs such as:
   • Mortgage interest
   • Property maintenance costs
   • Management fees
3. EASIER INHERITANCE TAX PLANNINGProperties owned through an SPV can be transferred by selling shares in the company rather than the property itself. This structure allows for smoother inheritance tax planning, as shares can be passed on or transferred to beneficiaries more easily than physical assets.
4. EFFICIENT SALE AND TRANSFER OF PROPERTIESIf you sell a property owned through an SPV, you can sell the company shares rather than the property itself. This may avoid certain taxes like Stamp Duty Land Tax (SDLT), which applies to property transfers but not always to share transfers.

HOW DOES AN SPV HELP WITH RISK MANAGEMENT?

A company structure like an SPV offers liability protection and is a streamlined process for managing multiple properties or partnerships.

Using an SPV structure can significantly manage risk for property investors, as it:

1. LIMITS PERSONAL LIABILITY

The company – not you personally – owns the property. If something goes wrong, the company’s liability is usually limited to the value of its assets, safeguarding your finances.

2. ISOLATES FINANCIAL RISK

An SPV is created solely for a specific property or portfolio, keeping its finances separate from your personal and other business activities. If the SPV faces financial challenges, the impact is contained within the company, without affecting your personal wealth or other ventures.

3. SIMPLIFIES PARTNERSHIPS AND JOINT VENTURES

If you invest with others, a company structure allows a clear definition of ownership through shares. Disputes are also easier to resolve which reduces the risk of misunderstandings or conflicts.

4. STREAMLINES PROPERTY OWNERSHIP TRANSFERS

On selling the property, you can transfer ownership by selling shares instead of the property itself.

5. SHIELDS AGAINST OPERATIONAL RISKS

Operating a property investment business through a company structure ensures clear accounting and governance. This reduces risks like compliance failures, tax errors or operational inefficiencies which could lead to penalties or losses.

6. FACILITATES FUTURE PLANNING

A company structure makes it easier to plan for changes in ownership. For example, you can pass on shares in the company to family members or other investors without transferring the property itself. This minimises legal and financial risks.

HOW TO SET UP AN SPV

Setting up an SPV in the UK involves the following steps:

1. REGISTER THE COMPANY/SPV WITH COMPANIES HOUSE – You will need to fill out an online form and pay a small fee.
2. APPOINT DIRECTORS AND SHAREHOLDERS – It is important to state who manages the SPV and who owns the shares of the SPV (this could be just you or include other investors).
3. SET UP A BUSINESS BANK ACCOUNT – You will need to open a dedicated bank account for the SPV to keep its finances separate from your own personal accounts.
4. SECURE FINANCING (IF NEEDED) – If you’re taking out a mortgage, you’ll likely need a buy-to-let mortgage for limited companies. Lenders will look at the SPV’s potential rental income and your creditworthiness.
5. BUY THE PROPERTYThe SPV – purchases the property. All expenses and income related to it are managed through the company.

BENEFITS OF PARTNERING WITH LONDON PROPERTY BROKER

We are experts in investments and can assist international investors in navigating the complexities of setting up an SPV company structure.

We offer bespoke support, along with a network of recommended professionals who can assist with legal advice as well as banking, tax and administrative guidance.

Time after time, our busy international clients pass on our details to their friends, family and business associates because of the stress-free service we deliver.

NEXT STEPS

Company structures offer a variety of strategic advantages for real estate investors. As a trusted partner, with expertise in property investment in the lucrative London market, we can provide end-to-end support in achieving investment success in the capital.

If you’re interested in learning more about setting up an SPV, call us today. Our friendly, knowledgeable team is here to help and we can guide you in the right direction.

We encourage potential investors to consult with our team to assess their unique needs and goals. Please contact us for a consultation to explore your options.