In recent years, landlords have increasingly turned to SPVs as a way to enhance their tax efficiency and limit personal liability when managing buy-to-let property portfolios. 

A Buy-to-Let SPV (Special Purpose Vehicle) is a limited company established solely to own buy-to-let investment properties and engage in no other trade. This is an attractive means to manage a property portfolio as it can provide limited liability on the investor and tax efficiency.  

There are over 325,000 Buy To Let SPVs in the UK registered with Companies House. The majority of those (170,000+) have been registered within the last 5 years. Highlighting the recent benefits that landlords have seen due to incorporation. 

So, what are the benefits?

Full mortgage interest deduction

Buying property through an SPV (a limited company) allows you to deduct your mortgage interest in full from your rental income. This reduces taxable profits and lowers your corporation tax liability. 

When investing in property under your personal name, you can benefit from a 20% tax credit on mortgage interest, which reduces the amount of tax you owe. For basic-rate taxpayers, this is efficient because the 20% tax credit effectively matches the deduction. However, for higher-rate taxpayers (40% or more), the tax credit means you lose out on the additional mortgage interest relief, as you only receive the 20% credit. This results in paying tax on 20% of the mortgage interest you have already paid. 

Whereas with a company, you can deduct the full interest amount, so it’s preferred by higher-rate taxpayers. Check out our case study, to see how an SPV fares for a basic-rate (20%) and higher-rate (40%) taxpayer. 

Tax efficiency and withdrawal flexibility for buy-to-let SPVs

Corporation tax tends to be lower (19% to 25% depending on the profits of the company), than the personal income tax liability you would pay if you owned properties personally. 

Further tax is issued on withdrawal of funds from a company, but there is added flexibility. Salary, dividends or pension contributions can be used. Additionally, any money you initially invested into the company as a ‘directors loan’ can be recovered tax-free.  

Basic-rate taxpayers pay 18% capital gains tax on property sales, while higher-rate taxpayers pay 28%. However, if you own the property through a company limited by shares, you wouldn't be subject to the 28% rate. Instead, when selling the company, the gains would be taxed at the lower capital gains rates applicable to shares. Your buyer would also pay less stamp duty, as they pay stamp duty on shares and not SDLT (Stamp Duty Land Tax) on properties, assuming there is one property in the company and you are selling the company, not selling the property itself. 

Asset protection and limited liability

Having a limited company holding your property portfolio can keep these assets under corporate protection and separate from personal assets. This can have positive legal implications which can reduce your personal liability.  

Joint investments & distributing income

Using a limited company structure allows you to co-invest in properties with other landlords. Co-owners are set up as shareholders/directors within the company. This could apply to families too, leveraging alphabet shares to cover differences in voting rights and so on. This offers greater flexibility for future planning and distributing income among the owners. 

Limitations

Higher costs

When selling your property through a company you will incur higher costs to sell. You would incur corporation tax and additional personal taxes when withdrawing the money from the company, which would end up being higher than the capital gains tax you would pay as an individual. Of course, you could leave the profits in the company for future purchases too. 

In contrast, you could sell shares in the SPV, and your buyer would not need to pay SDLT. As mentioned above, this is attractive for investors and for those who have 1 property per company.  

When you take money out of a company, you pay tax on this withdrawal. We’ll go through a few examples of this in the below case studies. 

Limited companies typically incur higher accountancy fees and paperwork costs. Usually, accountancy fees can range from £600 to £1000 with an additional £500 on each property. 

At Taxd, we have built software that will help you avoid this, simply share your completion statement and rental income/expenses and you will have your accounts ready for £299. 

Annual tax on dwellings

If your property is worth over a certain value there is an annual tax charge you would have to pay. This will limit the ‘tax efficiency’ you get by setting up a limited company for your properties.  

Property Value	Tax Charge
£500,000 - £1,000,000	£4,000
£1,000,000 - £2,000,000	£9,000
£2,000,000 - £5,000,000	£30,550
£5,000,000 - £10,000,000	£71,500
£10,000,000 - £20,000,000	£143,550
Over £20,000,000	£287,500

 

Transferring properties

Are you looking to move your property portfolio from your personal name into a limited company? This could become very costly for you as you would incur capital gains tax and Stamp duty land tax during the transfer. 

Landlords who have enough properties and spend a lot of time in their rental business may be able to utilise incorporation relief which will allow you to delay paying capital gains tax. With this structure, there is a lot of complexity and subjectivity, it’s essential to get expert advice before proceeding. 

Is this structure appropriate for you?

There are significant advantages for property investors related to tax efficiency and asset protection however, it is pivotal to address the drawbacks. This article hopefully provides you with a bit of insight into the Buy To Let SPV debate. 

Every situation is going to be very tailor-made and personalised based on a huge variety of factors that impact life. A very common situation is to use personal income/properties up to the basic-rate band for flexibility and efficiency, then build up a portfolio through companies and reinvest the profits.  

Here are key questions to consider when deciding whether an SPV is right for you… 

How much income am I making from other sources? 

• Higher-rate taxpayers benefit from lower corporation tax rates. 

Do I want to live off the property income? 

• Leaving profits in the company is more tax efficient than withdrawing. 

Will I use a mortgage to purchase the investment property? 

• Claiming full mortgage interest is key for higher-rate taxpayers. 

Who am I buying the properties for? 

• What’s your exit strategy? What’s the long term plan? 

SPV vs individual investor case study

Basic-rate (20%) taxpayer: Under £50,000 earnings

Let's use a basic-rate taxpayer who earns an additional £15,000 in rental income from a property worth £300,000. The mortgage value is £225,000 (£75,000 deposit)  repayable on an interest-only monthly payment at 4% resulting in payments of £749 per month and £8,988 per annum). We’ve estimated expenses to be £2,000 for this example. 

The calculation below applies to the tax levied on the rental income only.  

	Individual £		SPV £
Rental income	£15,000	Rental income	£15,000
Expenses	(£2,000)	Expenses (+ mortgage interest)	(£10,988)
Taxable income	£13,000	Taxable income	£4,012
Income tax (20%)	£2,600	Corporation tax (19%)	£762
Tax credits	(£1,798)	Tax credits	£0
Take home (less mortgage interest and tax)	£3,210	Retained earnings	£3,250

As company director you can withdraw money from your limited company in a few ways: salary, dividends, pension contributions or through the director loan. 

Many Buy To Let Directors would be able to withdraw the £3,250, tax-free through their director loan account. You are entitled to withdraw a total amount of your initial loaned amount to the company with no further tax implications.  

Assuming there was no director loan, we can pay the £3,250 as a dividend. We have an allowance of £500, so only £2,750 is taxable. At the basic-rate, this is £240 of tax to pay. So the amount we take home is £3,010. 

Therefore, in this case it’s more tax efficient to own property in the personal name. 

This does not take into account other benefits, or cons such as accounting/admin fees! 

Higher rate (40%) taxpayer: Over £50,000 earnings

	Individual £		SPV £
Rental income	£15,000	Rental income	£15,000
Expenses	(£2,000)	Expenses (+ mortgage interest)	(£10,988)
Taxable income	£13,000	Taxable income	£4,012
Income tax (40%)	£5,200	Corporation tax (19%)	£762
Tax credits	(£1,798)	Tax credits	£0
Take home (less mortgage interest and tax)	£610	Retained earnings	£3,250

In this case, at the higher-rate there is a clear winner from a tax perspective: The SPV / Buy To Let Limited Company. 

Similar to the above example, the retained earnings can be withdrawn through the director loan account if available. Alternatively, as a dividend at the higher-rate we would incur tax of £1,096. Taking home £2,154 after tax. 

Often it is worth keeping the money within the company to build a larger balance sheet by acquiring more properties keeping these SPVs for solely investment purposes.  

Conclusion

While SPVs offer clear tax benefits for higher-rate taxpayers, the decision to set one up should consider personal financial circumstances, investment goals, and potential administrative costs. Consulting with a tax advisor or property accountant is essential to make the right choice for your property portfolio. 

Get in touch with the experts at Taxd if you would like to chat through. 

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