Buying a Buy To Let through a Limited Company (SPV)

An SPV, or Special Purpose Vehicle, is a type of limited company created specifically for the purpose of buying, owning, and managing buy-to-let (BTL) properties in the UK. Using an SPV for BTL mortgages can offer several benefits, particularly in terms of tax efficiency and financial management.

Key Benefits of Using an SPV for BTL Mortgages:

1. Tax Efficiency:
• Mortgage Interest Relief:
• Individual landlords can no longer fully deduct mortgage interest from rental income for tax purposes, but SPVs can still deduct mortgage interest as a business expense. This can significantly reduce taxable profits.
• Corporation Tax Rates:
• Rental income within an SPV is subject to corporation tax, which is generally lower than the higher rates of income tax that individual landlords might face.
• Dividend Tax Allowance:
• Profits can be distributed as dividends, which may be more tax-efficient than receiving rental income directly, especially if the shareholders are within their dividend tax allowance.
2. Limited Liability:
• The SPV structure provides limited liability protection. This means personal assets are protected if the SPV faces financial difficulties or legal issues.
3. Professional Management:
• Operating through an SPV can make it easier to manage multiple properties and streamline business operations. It can also be more attractive to lenders and investors due to the professional setup.
4. Inheritance Planning:
• Shares in the SPV can be more easily transferred to family members as part of inheritance planning, potentially benefiting from business property relief.
5. Access to Financing:
• Some lenders prefer or only offer certain mortgage products to SPVs. This can provide access to a wider range of financing options and potentially better mortgage rates.
6. Clear Separation of Finances:
• Keeping personal and property finances separate can simplify accounting and financial management, making it easier to track the performance of your property investments.

Considerations:

1. Set-Up and Running Costs:
• Establishing and maintaining an SPV involves additional costs, including incorporation fees, annual filings, and accounting services.
2. Complexity:
• Managing an SPV requires a higher level of administrative effort and compliance with company law and tax regulations.
3. Dividend Tax:
• While dividends can be tax-efficient, they are still subject to dividend tax rates, which may reduce the overall tax advantage.
4. Lending Criteria:
• Some lenders may have stricter criteria for SPVs, including higher interest rates or larger deposit requirements compared to individual BTL mortgages.

Please Note: This is for information purposes only; you should discuss the option of either buying a BTL in your personal name or an SPV with an accountant.