SPVs and property investment

What is a SPV?

SPV is an acronym for “Special Purpose Vehicle”.

A SPV is a legal entity, usually in the form of a limited company, which has been set up for a particular and usually specific purpose.

Why have SPVs become a popular choice for property investment?

Due to the changes in buy-to-let taxation, accountants are increasingly advising their clients to conduct property investment activities through a limited company as it can be more tax efficient.

Mortgage lenders in turn are requesting that the activities of such companies be restricted to property related matters. This is because lenders understand the mechanics of the business more easily if structured as a company. They also prefer to lend to companies who are not combining property investment with general trading activities (e.g. sale of gadgets to consumers).

How are property SPVs structured?

We provide individual landlords as well as our accountant clients with property-specific SPVs for property investment activities.

Our solution has been simple – we form a limited company in the same way as we would do ordinarily, save that we include restrictions on the activities that the company is permitted to undertake. We achieve this by the inclusion of specific “objects” in the company’s articles of association.

Such objects are drafted wide enough so that the company can undertake almost any form of property investment, but narrow enough to satisfy mortgage lenders. And this works!

If you already have a limited company in which you hold property investments, and have been asked for a SPV, it may be that you only need to amend your existing articles to include the restrictions referred to above. This is also a simple process.

In addition to having appropriate articles, it is important to have the right Standard Industrial Classification (SIC code) (standard industrial classification of economic activities). The SIC code is a description providing an overview of the business activities of the company and must be filed at Companies House.

What next?

Whether you invest in property via a SPV should initially be a question for your accountant. They will do the tax analysis and let you know whether a SPV is appropriate for you.

If after obtaining tax advice you decide that a SPV will work for you, then your next step to creating one is very simple:

1. Form a company with restricted articles or if you already
have a company, you can adopt restricted articles; and

2. Choose the right SIC code.

We can help with both and any related queries you may have.

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