Our decision to limited company spv buy to let for property investments came after a painful tax bill that served the notice of how inefficient our personal buy-to-let structure is. It has redefined property investment for us into a more sustainable and scalable business model that has speeded up the growth of our portfolio. Before we went ahead with the formation, we were first actually hesitant because of complexities and even mortgage problems that may crop up.
If there is a property-specialised accountant and solicitor, then we worked on this and carried out thorough research before we agreed to the formation, which turned out to be less difficult than expected. Registration had taken less than an hour online with Companies House, though it did require professional guidance for the optimal share structure and drafting appropriate Articles of Association.
The real challenge came, however, when we had to transfer our existing properties into the new entity. This prompted capital gains considerations as well as stamp duty land tax. For our portfolio of five properties, the SDLT would already rack up to over £40,000, meaning a complete immediate patching up was financially not feasible. Instead, we went for a hybrid model-lending the acquisition of all new assets through the SPV, while the existing properties remain in our personal names.
Careful considerations require banking arrangements. That was why we opened a specific business account for the SPV, which made it clear that there was a separation between the company and personal finances. This has proven to be gold when it comes to accounting and simplistically clarifying what has formerly been a complicated idea of property-related expenses.
Another challenge was the refinance of existing mortgages through the SPV, since lenders usually charge 0.75% more than personal buy-to-let products. Lenders also have stringent criteria for lending. But when it comes to tax efficiency, the gains were much more beneficial than any other costs. We now pay only 19%. So, that earns us a lot more for reinvesting to pay 40% on rental profits. The biggest thing that we have probably gained in terms of long-term benefits is the strategic planning that the SPV structure allows. We’ve been much more business-like in our approach, drawing five-year growth plans along with exit strategies for every single property. That structured thinking has improved investment decisions and avoided emotional purchases of property.
Prior to considering this route, we recommend getting specialist professional advice on property SPVs. It pays off manyfold in tax efficiency in the long term and sets up a sustainable foundation for portfolio growth that personal ownership cannot match.
