When landlords start out they will come across the term SPV Limited Company Buy-to-Let, which means Special Purpose Vehicle, a limited company for buy to let. There are multiple options in terms of how they can trade. Some will choose to operate as individuals, others as limited companies, and others as SPVs.
Difference Between an SPV and Limited Company
Before deciding whether an SPV is the suitable business structure, it is important to understand the difference between an SPV and a trading limited company.
A limited company will usually conduct business, have employees, buy and sell a product or service and function as a trading business.
An SPV company does not trade. It is simply an entity through which to buy property for the purpose of letting the property. The only revenue which goes through this company is letting revenue.
There are buy-to-let landlords that will purchase property within the framework of an existing limited company that is trading. They will have very specific reasons for doing so. Nevertheless, a new landlord wanting to set up a new business will normally be advised to consider an SPV.
SPV Limited Company for Buy-To-Let
There are mortgage products available for individual landlords who operate as sole traders, for trading limited companies, and for SPVs. The majority of buy-to-let mortgage products, however, are available to SPVs and this is the legal framework that most financial and lending institutions prefer.
Buy-to-let mortgages provided to SPVs are quicker to process and easier to obtain. This is because the underwriting process is a lot simpler than when a private limited company or a sole trader apply for a BTL mortgage.
Underwriters who specialise in buy-to-let mortgages also have a specialist understanding of SPVs which makes the process quicker. Because there are more product options available to SPVs, pricing is inclined to be lower, making it a far more competitive market in which to be seeking a mortgage.
Underwriters will check to see that the SPV limited company is registered at companies house under the correct SIC code. The SIC (Standard Industrial Classification) code is issued at registration to classify the type of economic activity that the company engages.
For a buy-to-let SPV, this code would be for letting property. This code will be used when submitting your annual return to companies house and you will select it from section L, under real estate activities.
The two SIC codes that funding institutions prefer to see are 68100 – this is buying and selling of own real estate and 68209 – this is other letting or operating of own or leased real estate.
Even though SPVs are favoured by lending institutions when it comes to buy-to-let mortgages, the directors will still have to provide guarantees in the same they would for a trading limited company.
The SPV Limited Company Name
It is interesting to note that the name of the company also influences how SPV limited company buy-to-let underwriters view your application. Apparently, a real no is having the word development in the name, the name should be neutral and remain relevant for the lifetime of the SPV.
This is advice that is given by mortgage consultants so remember, if you’re going to invest in buy-to-let property through an SPV, it’s a very good idea to speak to a specialist broker.
Registration and Cost
Registration is easy and costs are low. While you can do it all by yourself, it is advisable to take the advice of a buy-to-let specialist first or possibly even let them do it all for you. This will ensure that all the correct information has been submitted and that there will be no errors to reverse at a later stage.
When deciding whether you wish to consider proceeding with your buy-to-let business within an SPV, it is critical that you get the appropriate advice from a tax consultant. Most investors in buy-to-let property invest to enjoy the tax benefits, however, it is never that simple. Obtaining advice before you register an SPV will save you the frustrations and difficulties with undoing hastily made decisions later.
In most cases, an SPV is considered the best route to follow for your BTL investments, there may, however, be the rare occasion when this is not a good idea and will take the knowledge and expertise of an expert broker or tax accountant, such as Belgravia Finance, to help you decide.