What is an SPV for buy to let?
An SPV — Special Purpose Vehicle — is a limited company set up specifically to hold investment property. Unlike a regular trading company, an SPV's sole purpose is property investment. It has its own SIC code (68100 for buying and selling property, or 68209 for letting and operating property) and exists separately from any other business you may run.
When you purchase a buy to let property through an SPV, the company owns the property, takes out the mortgage, receives the rental income, and pays corporation tax on profits. As a director and shareholder, you extract profits through dividends or a salary, each of which has different tax implications.
Why the SPV structure became popular
The main driver behind the surge in limited company BTL purchases was Section 24 of the Finance Act 2015, fully implemented by April 2020. Before Section 24, individual landlords could deduct their full mortgage interest payments from their rental income before calculating their tax liability. After the change, mortgage interest is no longer a deductible expense for individual landlords. Instead, they receive a basic-rate tax credit of 20% on their mortgage interest.
For basic-rate taxpayers, the net effect is broadly neutral. But for higher-rate (40%) and additional-rate (45%) taxpayers, the impact is significant. A higher-rate taxpayer who was previously deducting mortgage interest at 40% now only receives relief at 20%, effectively doubling the tax cost of their mortgage interest.
Limited companies are not affected by Section 24. A company can still deduct the full mortgage interest as a business expense before calculating corporation tax, which is currently 25% for profits over £250,000 and 19% for profits under £50,000, with marginal relief between.
Tax advantages of a limited company BTL
Full mortgage interest deduction
The most significant advantage is the ability to deduct 100% of mortgage interest payments from rental income before calculating corporation tax. For a higher-rate taxpayer with substantial mortgage debt, this can produce a meaningful tax saving compared to personal ownership.
Corporation tax vs income tax
Rental profits held within a company are subject to corporation tax at 19% to 25%, rather than income tax at up to 45%. If you do not need all the rental income for personal spending and can leave profits in the company, the tax rate is substantially lower.
Retained profits for reinvestment
Money left inside the company is only taxed at corporation tax rates. This allows you to reinvest retained profits into additional properties more efficiently than if you had to pay higher-rate income tax first and then save the remainder.
Inheritance tax planning
Shares in a property company can be transferred or gifted more easily than the properties themselves. While this is a complex area requiring professional advice, company structures can offer more flexibility for estate planning.
Important: The tax advantages of a limited company structure depend heavily on your individual circumstances, including your other income, the number of properties you own, and your long-term plans. Always seek professional tax advice before making structural decisions.
Disadvantages and costs to consider
Higher mortgage rates
Limited company BTL mortgages typically carry interest rates 0.2% to 0.5% higher than equivalent personal-name products. The product range is also more limited, although it has expanded significantly as demand has grown. A specialist buy to let mortgage broker can help you navigate the limited company lending market.
Running costs
A limited company has ongoing administrative and compliance costs that do not apply to personal ownership:
- Accountancy fees — Annual accounts, corporation tax returns, and VAT returns (if applicable) typically cost £500 to £1,500 per year
- Companies House filing — Annual confirmation statement and filing of accounts
- Corporation tax payment — Due nine months and one day after the end of the accounting period
- Self-assessment — You still need to file a personal tax return for any salary or dividends you draw
Double taxation on extraction
While profits inside the company are taxed at corporation tax rates, extracting those profits to your personal bank account triggers additional tax. Dividends are subject to income tax at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate) above the dividend allowance. When you combine corporation tax with dividend tax, the total effective rate can approach or exceed the rate you would pay as an individual landlord, particularly at lower profit levels.
Transferring existing properties
If you already own properties personally, transferring them to a company triggers a disposal for capital gains tax purposes, stamp duty land tax on the transfer, and potentially SDLT surcharges. These costs can be prohibitive, often making it uneconomical to transfer existing properties unless you are planning a very long hold period.
When does a limited company make sense?
The SPV structure tends to work best when:
- You are a higher-rate or additional-rate taxpayer with significant mortgage debt
- You are buying new properties rather than transferring existing ones
- You plan to retain profits within the company for reinvestment rather than drawing them all as income
- You are building a portfolio and want to reinvest rental profits into further acquisitions
- You have long-term investment horizons that justify the setup and running costs
When personal ownership still wins
An SPV structure may not make sense if:
- You are a basic-rate taxpayer — the Section 24 impact is minimal
- You own one or two properties with low or no mortgage debt
- You need to draw all rental income for personal living expenses
- You already own properties personally and the transfer costs would be prohibitive
- You plan to sell within a few years — the setup and running costs may not be recouped
Warning: Do not set up an SPV without professional tax advice. The wrong structure can cost you more in tax, not less, and restructuring later is expensive and complex.
How to set up a BTL SPV
Setting up an SPV for buy to let involves several steps:
- Incorporate the company — Register with Companies House using the appropriate SIC code (68100 or 68209). This can be done online for £12
- Open a business bank account — Required for receiving rent and paying expenses
- Appoint an accountant — Essential for managing your corporation tax, accounts, and advising on the most tax-efficient structure for drawing income
- Arrange the mortgage — Apply for a limited company BTL mortgage through a specialist broker
- Complete the purchase — The conveyancing process is similar to a personal purchase but with additional paperwork
Getting the right mortgage for your SPV
Not all lenders offer limited company BTL mortgages, and those that do have varying criteria around acceptable SIC codes, director experience, and portfolio size. A specialist buy to let mortgage broker can identify the most suitable lenders for your SPV structure and negotiate the best available rates.
Nesto matches you with experienced brokers who handle limited company BTL mortgages daily. Get Matched Free and find the right mortgage for your investment company.