When purchasing buy-to-let property, investors often face the decision of whether to buy the property under their personal name or through a limited company special purpose vehicle (SPV). While each option has its advantages, using an SPV can offer several benefits, making it an attractive choice for property investors. Let’s explore the advantages of using a limited company SPV for buy-to-let property investment:
1. Tax Efficiency
One of the most significant advantages of using a limited company SPV is the potential for tax savings. When owning a property in your personal name, rental income is subject to income tax at your marginal tax rate, which could be relatively high. In contrast, a limited company is subject to corporation tax, which is typically lower than individual income tax rates. Additionally, interest expenses on mortgages can be fully offset against rental income for limited companies, whereas, for individual landlords, the amount of mortgage interest deduction has been gradually reduced and will be completely replaced by a basic rate tax deduction.
2. Limited Liability Protection
By using an SPV, you create a separate legal entity for property ownership. This means that your personal assets are protected in case of any legal issues, debts, or liabilities related to the property. If the property faces financial difficulties or legal claims, your personal finances will not be at risk.
3. Inheritance Tax Planning
Transferring property from personal ownership to heirs can trigger inheritance tax liabilities. However, when owned by a limited company, the shares of the company can be passed on more efficiently through inheritance planning, potentially reducing inheritance tax burdens.
4. Enhanced Borrowing Opportunities
Limited companies may have better access to financing compared to individual investors. Some lenders prefer lending to companies due to the perceived reduced risk and additional protection of limited liability. Additionally, the recent changes to mortgage interest tax relief for individual landlords do not apply to limited companies, making buy-to-let investments through SPVs more financially viable for some investors.
5. Professional Image
Using an SPV for property investment can project a more professional image to tenants, partners, and potential investors. It may also be advantageous when engaging in property joint ventures or partnerships.
6. Flexibility and Adaptability
A limited company structure offers greater flexibility in terms of ownership, control, and the ability to add or remove shareholders. This adaptability can be useful when managing and expanding a property portfolio over time.
7. Ring-Fencing Properties
By using separate SPVs for each property, investors can ring-fence assets. This means that any issues with one property will not affect the other properties owned by different SPVs, further protecting your overall investment portfolio.
Conclusion
Using a limited company special purpose vehicle for buy-to-let property investment in the UK can offer significant advantages in terms of tax efficiency, limited liability protection, inheritance tax planning, and financing opportunities. However, it’s essential to consider individual circumstances, tax implications, and legal advice before deciding on the most suitable ownership structure. Consult with a qualified accountant or financial advisor to determine whether forming an SPV aligns with your investment goals and financial objectives.
Explore our Buy to Let page for further information and the different types of products available.
Credit – Image by vectorjuice on Freepik
Leave a Reply