What is a Special Purpose Vehicle (SPV/SPE)
How Special Purpose Vehicles work
Following last year’s tax law changes that restricted personal tax relief on Mortgage Interest, we have noticed a significant increase in requests for Special Purpose Vehicles/ Entity (SPVs/SPE) companies for properties.
Since last year’s Budget introduced a reduction in the amount of tax relief available for interest on buy-to-let mortgages, there has been an increase in the number of landlords purchasing buy-to-let investments in a limited company rather than in their personal name.
We put together a small guide to help you understand your companies needs and how to make the right decision.
What’s Special purpose vehicles (SPVs)?
An SPV/SPE is a legal entity created for a limited purpose, it can be used for a number of purposes including the acquisition and/or financing of a project.
They are usually because of the different tax treatment. Instead of paying income tax as an individual, a limited company pays corporation tax, which currently sits at 19%.
Special Purpose Vehicles are not a company type registered by Companies House, it depends from case to case on what’s needed to make a company a special purpose vehicle.
For example, purely for the purpose of owning a property.
Mortgage lenders generally prefer to lend money to an SPV as the objects in the articles restrict the company from other areas of business.
Lenders tend to relax stress testing when it comes to rental calculations allowing the borrower to maximise the borrowing.
Limited companies are increasingly popular there are several things to consider as they are not suitable for everyone.
Speak to you lender while considering an SPV.
How Special Purpose Vehicles work?
An SPV/SPE, acts as an affiliate of a parent corporation which sells assets off of its own balance sheet.
They also create benefit by achieving off-balance sheet treatment for a tax and financial reporting purposes for a parent company.
Its best to know the requirements of your mortgage lender prior to setting up the company as they may have specific object requests.
Our team has experience drafting the special purpose articles to meet your mortgage lender requirements. We can then incorporate those into your SPV articles and register your company for you.
Give us a free call on 0800 988 3223, we offer support to help you get your company registered or Click here for all offers.