What are SPV’s and when to use them in property investment

A special purpose vehicle (SPV) is a company structure set up for a specific purpose and in property investment. It refers to a limited company which is set up for the purpose of property investment. Landlords often use SPVs to purchase buy-to-let, holiday lets or commercial properties as it allows them to establish joint ventures with an investment company. Investors used to buy properties in their own name but tax changes in recent years have caused more people to set up investment companies, especially for their property portfolios. The benefit of purchasing/mortgaging a property using an SPV is because of the lower tax rate as it uses the corporation tax rate, which could save you thousands. Research by Get Ground has shown that SPVs are a recent trend as in 2017, mortgage interest relief was only available to companies. This led to lots of people setting up investment companies, with 45% of all companies being set up in the last four years, with 50,000 new buy-to-let companies being set up in 2022 alone. Today, over half of all buy-to-let purchases are completed through investment companies, showing how popular it is. 

SPVs do also have their disadvantages such as the higher interest rates you may have to pay when purchasing a buy-to-let property via an SPV, making this not as tempting for someone purchasing their first rental property. There can also be stricter assessment criteria from the lender on SPV purchases as they may look into the financial history of the director and company. Moreover, you also have to do more work in setting up and managing the paperwork for this company, making the process much more complex than buying it yourself. 

However, this can be worthwhile for people with larger property portfolios and the company structure is a way of isolating the risks of financing these assets, protecting against bankruptcy and insolvency. You could look at when to form an SPV as a tipping point when the benefits outweigh the disadvantages or time involved in the conception of the company. It will be completely down to your portfolio but usually when you are looking at adding more than two properties to your portfolio, an SPV may be something to look further into. 

In conclusion, we recommend seeking professional advice on setting up an SPV if you have ambitions to grow a large property portfolio. When would be the best time for you to set up a property investment company is completely down to your situation and at what stage you are in your property investment journey. 

Image shows a wooden house next to a bunch of keys and some documents to represent Special Purpose Vehicles in Property Investment which is spoken about in this article by Harbour Property Group.
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