The establishment of a limited company spv buy to let has been the inflection point in our investment strategy as we expanded our property portfolio from the two initial residential properties. Not only does this change the way we hold property, but it also formatively changes our long-term financial planning.
Frustration with the tax liabilities that came from accumulating more personal portfolio was the starting point for our journey. Almost 40% of our rental incomes disappeared down the tax pipe as we were earners in the higher band, thus limiting our possibilities for reinvestment and expansion. Upon discussion with the accountant, the realisation came that a special purpose vehicle gave a clear alternative.
Forming the company proved surprisingly simple. We registered it online with Companies House, making sure to select the appropriate SIC code (68209 – Other letting and operating of own or leased real estate) in order to correctly define the company’s purposes. The whole process took less than 48 hours and came to just £12 for basic registration, although we spent another £400 on professional advice to ensure everything was structured optimally.
Getting the finance through the SPV creates new barriers. Almost immediately, we learned that mortgages were offered less frequently, and the rates were typically 0.5-1% higher than personal buy-to-let rates. But it was easy to see that the offset was the huge tax benefits. With corporation tax at 19% against our personal rate of 40%, we retained a large portion of that rental profit for reinvestment.
Initially, the administrative burden appeared daunting. Just while maintaining proper company accounts, filing confirmation statements, and following corporate governance procedures would add about 2-3 hours’ work each month, the discipline of the organisation has actually served to better our investment approach.
Perhaps most unexpectedly, it is going to put a clever classiness on our dealings with letting agents, maintenance contractors, and even tenants as the name of our SPV itself. Operating as a limited company has positioned us as professional investors rather than casual landlords, often resulting in more favorable treatment and opportunities.
Three years and four more properties down the line, this has become the foundation of what is now evolving into a family business. What began as a tax efficiency exercise has revealed itself to be a serious investment vehicle through which we will eventually involve our sons and daughters in wealth creation and management.
For anyone thinking of this route, we would advise them to keep their perspective to include not only the short-term tax benefits but also long-term structural benefits that a properly set up property SPV can provide.
