If you’re a property investor in the UK, you’ve probably noticed the growing buzz about using a Limited Company – more specifically, a Special Purpose Vehicle (SPV) – to hold your property portfolio. But is it just hype, or is there a strategic financial advantage?
Let’s delve into the ins and outs of this and break down why purchasing property through a Limited Company structure can be a game-changer for savvy investors. We’ll explore how it can increase profits, reduce admin, and accelerate your property portfolio growth – all while staying on the right side of HMRC.
What Is a Special Purpose Vehicle (SPV)?
An SPV is a type of Limited Company (usually with SIC code 68100/68209– buying and selling of own real estate/ letting and operation of own or leased real estate) that is set up solely to own and manage property investments and lettings. It’s a clean, simple, and tax-efficient structure that’s increasingly popular with both new and seasoned landlords. Here’s why…
1. Maximise Profitability with Corporation Tax Benefits
One of the most compelling reasons to buy property through an SPV is the favourable tax treatment. Under a Limited Company, rental income is taxed at the Corporation Tax rate (currently from 19%) – not at the higher personal income tax rates which can reach up to 45% for additional rate taxpayers. Compare this to an individual ownership, where mortgage interest relief is restricted to a 20% basic rate credit. That change alone has squeezed profits for many private landlords since Section 24 came into force.
By contrast, SPVs can still deduct full mortgage interest as a business expense, making geared investments significantly more profitable.
2. Accelerated Portfolio Growth through Retained Profits
Want to scale your portfolio faster? Let’s be honest, everyone wants efficiency. Using a Limited Company structure allows you to retain profits within the company and reinvest them – without drawing income and incurring personal tax liabilities. This means you can build capital faster (on average up to 20-30% more capital per profit cycle), increase deposits for future acquisitions, or even use retained profits to fund refurbishment projects.
This structure is particularly advantageous for long-term investors with growth ambitions, as the compounding effect of retained earnings can significantly accelerate your path to financial freedom.
3. Simplified Estate Planning and Asset Protection
Holding property in an SPV also opens up more flexible estate planning options. You can assign shares in the company to family members or set up trusts, this helps to mitigate Inheritance Tax (IHT) in a structured and more importantly- a legal manner.
Additionally, operating via a Limited Company provides limited liability protection, separating your personal finances from business assets. This is crucial in the event of disputes, tenant issues, or financial downturns.
4. Professionalism and Ease of Admin
Contrary to what many believe, running a property portfolio through a Limited Company isn’t as admin-heavy as it sounds – especially with Sourced Enterprise, enabling you to form a limited company in just 4 simple steps – perfect for holding your property portfolio. Open business bank accounts seamlessly and file your annual accounts and tax returns with ease, saving you time and money.
An SPV is designed for simplicity. With no other trading activity, the accounts and tax returns are generally easier to manage than a multi-purpose business. Plus, using an SPV gives you a more professional image, which can help when working with commercial lenders or negotiating with JV partners.
5. More Financing Options from Lenders
While not all mortgage lenders work with Limited Companies, an increasing number of specialists buy-to-let lenders now offer competitive rates for SPVs. In fact, many investors find that the criteria for borrowing under a Limited Company are less stringent than for individuals – especially if your personal income is already stretched. As the lending landscape continues to shift, expect more tailored SPV mortgage products to enter the market.
Are There Any Downsides?
With everything in life there are always of course, some considerations to weigh:
Higher mortgage rates: Limited Company mortgages can occasionally be slightly more expensive, although the reason so many opt for this route is because the tax savings often comfortably outweigh this in the long run.
Capital Gains Tax: If you're transferring personally owned properties into a Limited Company, you'll need to factor in CGT and Stamp Duty charges.
Ongoing compliance: Filing accounts and annual confirmation statements is mandatory – but as we mentioned – Sourced Enterprise removes this headache on your behalf.
Final Thoughts: Is It Right for You?
Using a Limited Company for property investment isn’t always a one-size-fits-all solution. But for investors looking to grow a sustainable portfolio, retain profits, and operate with maximum tax efficiency, it’s a model that’s hard to beat.
Many successful investors now start with an SPV from day one – future-proofing their portfolio and unlocking long-term growth. Before you make the move, speak with one of our specialists who understands Limited Company structures and can answer any burning questions you may have. With the right advice and planning, this strategy could significantly boost your bottom line.
Want help setting up your property SPV?
Whether you're just starting or scaling up, Sourced Enterprise can help to propel your property investment journey through Limited Company set ups. So, why not reach out and get in touch today to learn more?
Get in touch by emailing us at enterprise@sourced.co
Author
Chris Kirkwood
