What is a Limited Company SPV Mortgage

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SPV Mortgages
The UK’s buy-to-let limited company mortgage specialist.

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Introducing SPV limited company mortgages

First things first; let’s start by covering what a limited company mortgage actually is; and how purchasing your buy-to-let through an SPV may be a better option than purchasing in your own name.

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What’s so great about a limited company mortgage?

There’s several potential benefits to purchasing through a limited company mortgage instead of going it alone.

Depending on your circumstances, purchasing a buy-to-let property through an SPV limited company may be more tax-efficient than purchasing the property in your name. If you choose the former, you’ll be charged corporation tax on your rental income. As of 2020, corporation tax is charged at 19%; so if your annual rental income minus expenses is £50,000, you’ll be paying £9,500 in corporation tax each year. This rate remains the same no matter how much your limited company makes.

If you choose the latter and purchase a buy-to-let property in your own name, you’ll be charged personal income tax on your rental income instead of corporation tax. Income tax is charged at different rates depending on your marginal rate of tax level; so if your rental yields push your annual income into one of the higher brackets, your tax bill will be much higher.

And here’s the key difference which makes purchasing through an SPV attractive to higher-rate taxpayers – the option to subtract 100% your mortgage interest and letting expenses (including the salaries of your directors) from your taxable income.

This used to be an option for individual landlords too; but since April 2017, the government has been gradually phasing out this tax relief over a four year period and replacing it with a tax credit of 20% of your mortgage interest payments.

Landlords are seeing their tax bills rise significantly as a result of this change. To provide an example, let’s imagine you’re a higher-rate taxpayer receiving £950 per month in rent and paying £600 in interest on your mortgage. Before 2017, you would have been subject to £1,680 in tax – after 2020, your bill will increase to £3,120.

But it’s not all bad news, because the government’s changes do not apply to SPV limited companies – you’re free to use your mortgage interest and expenses to offset your tax bill. (As we’ll cover later in this guide, it’s best to seek independent tax advice before proceeding with a limited company mortgage.)

And finally there’s succession planning; although tax is due on disposal of company shares along with tax on any capital gain, your loved ones can avoid stamp duty land tax and potentially inheritance tax.

What are the current rates of tax on SPV limited companies?

At the time of writing, SPV limited companies pay corporation tax on their rental profits at 19%.
Capital gains tax is due on the eventual sale (or ‘disposal’) your property; however you can claim relief on your corporation tax if you make a loss from the property’s sale.
SPV limited companies receive full relief on mortgage interest and letting expenses.
Extraction of profits as dividends are taxed at 7.5%, 32.5% and 38.1% depending on the recipient’s marginal tax rate.

What is an SPV limited company mortgage?

A typical mortgage is a legal agreement between the lender and an individual buyer, enabling them to borrow money to fund their property purchase.

Limited company mortgages, on the other hand, are an agreement between the lender and a limited company. This company is known as a ‘special purpose vehicle’ (SPV), which means it has been set up solely to hold and manage property on behalf of its shareholders.

In other words, an SPV mortgage allows you to purchase a buy-to-let through a company, rather than purchasing it in your own name. That brings us neatly onto our next question…

Is an SPV suitable for all types of properties?

Most property purchases (including both houses and flats) can be funded via an SPV mortgage. Certain properties may come with restrictions for certain lenders.

All properties require surveyor consultation before a mortgage application will be accepted. Some types of properties require more scrutiny than others – these include:

HMOs (‘houses of multiple occupancy’) – residential properties with ‘common areas’ shared between multiple occupants
MUBs (‘multi-unit blocks’) – self-contained flats which have been created by splitting a single property into multiple units

Please note; in order to get the lowest SPV mortgage rates for multi-block units, all services within each unit (such as electricity, gas, water etc) must be separate from the other units in order to be considered a self-contained property. If a unit shares its services with another unit, the mortgage rates will be higher.

It’s always best to speak with an SPV mortgage specialist before making an offer, as they can tell you if the property you’re interested in can be purchased via an SPV mortgage.

What stamp duty can I expect to pay on an SPV buy-to-let?

Unfortunately, stamp duty tax still applies whether you purchase through a limited company or in your own name; and for buy-to-lets, you pay an extra 3% versus the standard stamp duty rate.

You pay 3% stamp duty on any portion of your purchase price between £0 and £125,000.
You’ll also pay 5% on any portion of your purchase price between £125,001 and £250,000.
You’ll also pay 8% on any portion between £250,001 and £925,000.
You’ll also pay 13% on any portion between £925,001 and £1.5m.
Finally, you’ll pay 15% on any portion above £1.5m.

Confused? Don’t worry! You can find out exactly how much stamp duty tax you owe in seconds with our handy stamp duty calculator tool. Give it a try!

Can I use an SPV limited company to purchase new buy-to-let properties if I already own properties in my name?

Yes. Certain limited company mortgage options will even enable you to bypass the limitations set on ‘portfolio landlords’

Can I transfer personally held properties to my new SPV limited company?

Yes and no. If you’d like to take advantage of the lower corporation tax rates, tax relief options and asset repossession protection that an SPV provides, you might be able to sell your personally held property to your SPV limited company; however you may need to pay stamp duty land tax and capital gains tax on the transaction.

If you decide to take this route, it’s best to seek independent tax advice to establish what tax charges you will liable for.

Are SPV limited company buy-to-let mortgage rates higher or lower than personal buy-to-let rates?

SPV mortgage rates historically have been higher than personal rates. At the time of writing, the best SPV rate is 2.44% while the best personal buy-to-let rate is 1.51%.

However, as the popularity of these specialist mortgage deals increases, so does the number of lenders entering the space – which means rates will drop as both supply and demand increase together. SPV rates in 2015 started at 4.5%, and have gradually decreased over the past four years as more and more lenders have stepped in to offer SPV mortgages.

The guidance and/or advice contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK.
The Financial Conduct Authority does not regulate some aspects of buy-to-let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage.