How to file Buy-to-Let SPV Accounts

One is to set up a standard trading company, which operates like most other businesses. The other is to form a Special Purpose Vehicle (SPV), a limited company created specifically for holding property. While both structures have their advantages, the SPV model has become increasingly popular among landlords due to its simplicity and preference among mortgage lenders.

In this article, we break down why SPVs are often the preferred route, how to stay compliant with Companies House and HMRC, and what you need to know about filing your SPV accounts accurately and on time.

What is an SPV?

An SPV is a business entity that is set up for a well-defined special interest.

When it comes to property investment, an SPV is usually formed to purchase buy-to-let property or for property development. However, an SPV can also be used for other purposes, such as holding intellectual property, managing joint ventures, or raising capital for a single investment opportunity.

Often, an SPV is set up as a private company limited by shares, but it does not have to be. It can take other forms, including a public limited company or a limited liability partnership, depending on the needs of the investors and the nature of the investment.

Why have Special Purpose Vehicle Companies increased in popularity?

In the past, higher-rate taxpayers could claim mortgage interest payments as an expense to reduce their tax bill, and operating via a limited company was relatively rare. However, as of April 2020, landlords are no longer able to deduct mortgage expenses from rental income to reduce their tax liability. This change is a result of Section 24 of the Finance (No. 2) Act 2015, which gradually restricted relief on finance costs. Since these changes were announced, the SPV route has become far more appealing, even for smaller property investors, due to its potential for more efficient tax treatment.

Is a Special Purpose Vehicle Company right for everyone?

Using an SPV company structure for a buy-to-let property is not suitable for everyone. SPVs are typically used by higher and additional rate taxpayers, as well as those who were previously basic-rate taxpayers but have moved into a higher bracket due to recent tax changes.

For these individuals, operating through an SPV can make a significant difference, often resulting in a lower overall tax liability on rental income. However, for landlords with smaller portfolios or lower incomes, the additional costs and administrative responsibilities of running a company may outweigh the potential benefits.

How do you set up an SPV?

You can ask your accountant to set it up, or you can do it yourself online for less than £20 through the government website.

To start, you’ll need to identify a five-digit SIC (Standard Industrial Classification) code that applies to your business. This official code is used to classify your business, and every business must have one (you can view the full list online). Many buy-to-let landlords use SIC code 68209, which covers letting and operating of own or leased real estate. You’ll find this and other property-related codes in Section L on the Companies House website.

Next, you’ll need:

• A company name: It must be unique. You can search the existing register to see if someone else has already used your idea.

• A company address: This must be a physical address in the UK. You can use your home address, but it will appear publicly on the Companies House register. If you have an office or want more privacy, consider using that instead.

• At least one director: The director must be at least 16 years old.

• Details for the shareholders: Shareholders are the owners of the company and can also be directors. You need at least one, but you can have as many as you like.

• A memorandum and articles of association: These set out the company’s rules and confirm the shareholders’ agreement to form the company. Templates are available on the government website.

• Details of anyone with significant control (PSC): This includes anyone who owns 25% or more of the company’s shares.

Advantages of Special Purpose Vehicles (SPVs)

• SPVs are not subject to Section 24 tax restrictions, improving overall tax efficiency compared to personally owned properties.

• SPVs are straightforward to understand and evaluate, enabling more efficient decision-making processes.

• As a separate legal entity, an SPV limits financial risks to the company itself, offering protection for your personal assets.

• Opting for a limited company buy-to-let structure allows you to pay corporation tax at a rate of 19% on profits up to £50k (2024/25), solely on rental profits and property gains.

• By limiting your personal income, SPVs help minimise potential income tax obligations.

• Retaining profits within the SPV allows for reinvestment into additional buy-to-let properties, maximising the growth of your portfolio without needing to withdraw funds personally.

• Merging multiple properties under a single SPV umbrella reduces administrative burden and ongoing costs.

• If necessary, closing the SPV via a Members Voluntary Liquidation (MVL) offers a straightforward process and potential tax benefits.

• If you’ve personally invested in the SPV as a loan, you can withdraw funds through a director’s loan without incurring immediate tax liabilities, provided it’s done properly.

• Unlike properties held in personal names, an SPV can claim full mortgage interest relief as an allowable expense, providing significant tax advantages.

• Using an SPV also allows you to access more flexible tax planning and efficient asset management strategies, depending on your future growth plans.

  Disadvantages of Special Purpose Vehicles (SPVs)

• Compared to personal mortgage rates, SPV mortgage products often come with higher interest rates, which can reduce overall profitability.

• Many lenders may require directors of the SPV to provide personal guarantees, adding an element of personal financial risk.

• Transferring existing properties into an SPV may incur costs such as Stamp Duty Land Tax (SDLT), Capital Gains Tax (CGT), and legal fees, making restructuring expensive.

• Unlike individuals, who benefit from an annual Capital Gains Tax allowance (£3,000 for the 2024/25 tax year), SPVs are not entitled to this allowance when selling a property.

• If you choose to withdraw all rental profits as income, dividend tax obligations may apply to shareholders, with rates of 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate), depending on the individual’s tax band.

How to file SPV Accounts?

Once your SPV’s accounting period ends, you’ll need to:

• Prepare annual accounts in line with UK accounting standards (FRS 102 or FRS 105) and file them with Companies House and HMRC.

• Calculate and pay Corporation Tax based on your profits. The current rate is 19% for profits up to £50,000, with higher rates for larger profits.

• Submit the CT600 Corporation Tax Return electronically to HMRC. This must align with your company accounts and include any capital gains.

• File a confirmation statement annually with Companies House to ensure your company’s details remain accurate and up to date.

• Keep records of any dividends paid, as these have personal tax implications for shareholders.

Note: Companies do not receive a Capital Gains Tax allowance when selling a property. Gains must be included in the CT600 return.

By following these steps and maintaining accurate records, you can ensure that your SPV accounts are filed correctly and on time.

Conclusion

Establishing a buy-to-let SPV can be a strategic and tax-efficient way for UK landlords to expand their property portfolio. While its potential tax advantages and asset protection benefits make it an appealing option, it’s important to carefully consider your personal circumstances, investment goals, and associated costs before taking this route.

Contact Taxd if you need expert guidance on setting up a buy-to-let SPV.

FAQs

1. What is the tax on SPV in the UK?

Profits made through an SPV are subject to Corporation Tax. As of 2024, the rates are as follows:

• 19% for profits up to £ 50,000
• A tapered rate for profits between £50,000 and £250,000
• 25% for profits over £250,000

2. How to incorporate an SPV?

To incorporate an SPV, follow these steps:

• Determine the type of legal entity suitable for the SPV.
• Reserve a unique company name for the SPV with Companies House.
• Prepare and file the necessary documents (e.g., memorandum, articles of association) with Companies House with the help of our agents if needed.
• Obtain the Certificate of Incorporation once the registration process is complete.

3. What is an SPV in the UK?

An SPV (Special Purpose Vehicle) is a limited company set up specifically for property investment purposes. In the UK, it is typically used to buy, hold and manage buy-to-let properties. The company should not engage in any other trading activities, either now or in the past, as it’s intended solely for property-related activities.