In this article, we’re taking a deeper look at the tax advantages of using an SPV, or Special Purpose Vehicle. For many investors, property remains a highly credible asset class for wealth creation. However, the landscape of buy-to-let taxation has shifted dramatically in recent years. If you are looking to diversify your investment portfolio or secure your retirement, understanding the “how” of ownership is just as critical as the “what” and “where.”
One of the most effective strategies for modern landlords is the use of a Special Purpose Vehicle (SPV). An SPV is a limited company set up specifically to hold property, distinct from your personal assets or other trading businesses.
At Holland Asset Management, we believe in managing risk and unlocking opportunities. In this guide, we break down the primary tax advantages of using an SPV and how it can help you navigate the complexities of the UK property market.
1. Mitigating the Impact of Section 24 (Finance Act)
The most significant driver for the shift towards SPVs was the introduction of Section 24 (Finance Act) in 2017.
For private landlords, mortgage interest payments are no longer treated as a deductible business expense. Instead, you receive a basic rate tax credit (capped at 20%). For higher and additional-rate taxpayers, this often results in a much higher effective tax bill, sometimes even exceeding real profits.
The SPV Advantage:
Properties held within a limited company are exempt from Section 24. This means an SPV can deduct 100% of mortgage interest costs from its rental income before calculating taxable profit. For highly geared portfolios, this distinction can be the difference between a profitable investment and a loss-making one.
2. Tax Advantages of Using an SPV: Corporation Tax vs. Income Tax
When you own property personally, rental profit is added to your other income and taxed at your marginal rate—up to 45% (or 60% in the trap zone) for high earners.
The SPV Advantage:
An SPV pays Corporation Tax on its profits. As of the current tax year:
- Small Profits Rate: 19% for profits under £50,000.
- Main Rate: 25% for profits over £250,000.
- Marginal Relief: A tapered rate applies for profits between £50,000 and £250,000.
Even at the higher 25% rate, this is significantly lower than the 40% or 45% personal income tax rates, allowing you to retain more profit within the company for reinvestment or debt repayment.
3. Flexibility with a Directors' Loan Account
Funding your SPV efficiently is key to a successful investment strategy. When you inject personal cash into your SPV to fund a deposit or refurbishment, this is recorded as a Directors’ Loan Account.
The SPV Advantage:
You can draw this money back out of the company tax-free once the SPV generates profit or is refinanced. This allows you to recoup your initial capital investment without triggering Income Tax, a flexibility not available in the same way for personal ownership.
4. Strategic Growth via a Holding Company Structure
For investors planning to build a significant portfolio, a Holding Company Structure offers robust asset protection and tax efficiency.
The SPV Advantage:
By placing your SPVs under a holding company, you can potentially move dividends between the group companies tax-free. This allows you to recycle profits from a mature, cash-flowing property into a new SPV to fund the next deposit, accelerating your portfolio growth without “leaking” tax to HMRC on the way out.
5. Reduced Stamp Duty Land Tax (SDLT) on Exit
While purchasing a property typically triggers Stamp Duty Land Tax (SDLT), the rules change if you decide to sell the company rather than the property itself.
The SPV Advantage:
If you sell the shares of your SPV to another investor, the transaction is subject to a 0.5% stamp duty on the share value, rather than the much higher SDLT rates (plus the 3% surcharge) applicable to the physical property. This can make your portfolio a more attractive acquisition target for other investors in the future.
Important Considerations: Mortgages and Administration
While the tax benefits are compelling, it is essential to consider the operational side:
- Buy-to-Let Mortgage: Historically, interest rates for limited companies were higher than personal products. However, the gap has narrowed significantly. Lenders often prefer SPVs for professional landlords as the ring-fenced structure lowers their risk.
- Companies House: An SPV requires formal registration. You will need to file annual accounts and a Confirmation Statement. Ensuring you use the correct Standard Industrial Classification (SIC) code (typically 68209 for letting and operating own or leased real estate) is vital for mortgage lender acceptance.
Frequently Asked Questions (FAQs)
Yes, but this is treated as a sale and repurchase. It may trigger Capital Gains Tax (CGT) on any value increase and Stamp Duty Land Tax (SDLT) on the current market value. We recommend our Property Portfolio Review service to analyse if the long-term tax savings outweigh these upfront costs.
No, the company pays Corporation Tax on the gain. Individuals pay CGT on the sale of shares or assets, but companies do not receive an annual tax-free allowance like individuals do. However, companies can use “indexation allowance” (if applicable historically) or offset losses in ways individuals cannot.
Not always. If you are a basic rate taxpayer with no plans to expand, the additional administrative costs (accountancy fees, filing) might outweigh the tax benefits. SPVs are generally most beneficial for higher-rate taxpayers and those building a portfolio.
You can take money out as salary (PAYE), dividends, or pension contributions. Dividends are taxed at a lower rate than salary but are paid out of post-tax profits. Pension contributions are a deductible business expense, often making them a highly tax-efficient way to extract profit.
Ready to Optimise Your Property Structure?
At Holland Asset Management, we specialise in Company & Tax Structuring to ensure your investments are built on a solid foundation. Whether you are a first-time investor or managing a large portfolio, the right structure can significantly impact your long-term financial freedom.
Contact Us Today to discuss your strategy with our dedicated team.
