Having taken a look at what an SPV is in my last blog post here – and having established that it is not a specific type of entity but rather a vehicle that’s used for a specific purpose to help you achieve your goals – it’s now time to think about when we would use an SPV.
As a quick recap, an SPV could be a limited company, partnership, LLP or any other type of entity – and as such, there are probably hundreds of reasons why you would want to use one for property investing.
But to give an example, it might be that you decide to use an SPV if you are going to team up with a joint venture partner. Regardless of the structure you use (maybe you are putting in the time and them the money, or vice versa), you would both get together and consider what you both want to get out of the agreement. You would consider whether the best route to take would be to set up a limited company, LLP or straightforward partnership, as well as the terms to ensure you both felt safe and protected within the agreement.
Another reason why you may decide to use an SPV might be to get around the changes to Section 24. Since this change, many property investors are buying properties into a limited company to enable them to offset all of the mortgage interest against rents when calculating corporation tax following their inability to offset it against rents when calculating income tax.
With this in mind, let’s think about finance for limited companies and what the banks are going to consider when you make an application. Essentially, they are going to look at the SPV you are using and will consider whether they want to lend to that particular type of entity.
Regardless of whether you are using a limited company, an LLP or any other entity, there are no hard and fast rules as to whether they will lend to one entity over another. Instead, what they will be looking at is you and your joint venture partner.
Often, I’m asked if it’s advisable to set up a new SPV every time an investor buys a property. A mortgage broker or an accountant may have a different view, but in my opinion, the answer would depend upon if you are buying the properties in your name – and your name alone.
If you’re creating a buy to let portfolio and are planning to keep a lot of the properties, then I wouldn’t see why you would want to split those properties between different entities. If you are accumulating properties, you may as well just have the one entity if they are all going to be in your name – or maybe in the name of a life partner or significant other.
Having said this, if you are instead thinking of doing multiple deals with multiple JV partners, then it would make sense to ring fence each of these deals; set up an SPV and put each property that you do with that JV partner into a particular SPV which has been created for that specific purpose.
Nevertheless, it is worth sitting down with your accountant and assessing the tax implications of your decision, because each entity will have a different implication – and if you want to change the entity further down the road, it might not only be complicated, but potentially very costly too.
Here’s to successful property investing
Peter Jones B.Sc FRICS
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