Expert Guide

Setting up a limited company for buy-to-let property investment

FAQs on SPV limited companies for landlords

More than 1 in 2 investment properties are now purchased via limited companies, also known as 'Special Purpose Vehicles' or SPVs. Here are some of the most frequently asked questions about property investment companies.

What is a limited company?

A limited company is an entity in its own right, and legally separate from you as an individual. Your company is registered at Companies House (a straightforward process), and you (and perhaps other people you choose) will own shares in the company. It's a popular way to run a business, with around 2 million limited companies registered in the UK.

What is a property investment company?

A property investment company is a limited company that you set up and own, with the sole purpose of buying and renting out property. Your property investment company purchases and then owns the buy-to-let property, and you own the company. The day to day accounting happens within your company - i.e. your tenants pay rent into your company's bank account, and the mortgage payments are paid from this bank account.

What is a special purpose vehicle (SPV)?

A special purpose vehicle (SPV) is simply a regular limited company which is used solely for a particular purpose. In the case of property investment, it's used to purchase and rent out properties. If you have another business (perhaps contracting or consulting) it's recommended that you don't combine this with your rental properties - it can complicate getting a mortgage. Lenders prefer properties to be held inside a separate SPV, set up for this purpose.

Review your share structure with an expert

Book a limited company tax consultation and get 121 advice from a Provestor expert accountant on tax implications & optimisations plus recommendations on how to structure your company.

How is an SPV different to personally owned buy-to-lets?

Until recent years, small investors generally purchased buy-to-let properties personally, in their own name. Since a change in tax legislation, it is becoming increasingly popular to set up and use an SPV. The process of purchasing a property in this way is very similar to buying one personally, but the property is owned by the company, and you own the company.

I currently own a rental property, can I transfer it to my limited company?

Technically, yes you can, however it's rarely economically viable with only one or two properties. That's because in most cases you'll need to sell the property, and your company will need to buy it. This means you may have to pay capital gains tax personally on the sale, and your company will need to pay stamp duty on the purchase. You may also have early redemption charges from your mortgage.

Do I still have to pay stamp duty when buying a property through a limited company?

Yes, and your company will be subject to the 3% stamp duty surcharge (which is common to most buy-to-lets). Whilst for personally owned properties this only applies to the second and subsequent properties you purchase, for limited companies this applies to all purchases. However, this does include your main home, so if you already own that then your first buy-to-let owned personally would also be subject to the 3% surcharge. Check out our stamp duty guide for more information

Do I still have to pay capital gains tax when selling a property from a limited company?

Whilst it's not technically called capital gains tax, you have to pay tax on the gain when you sell a property from a limited company. When you sell a property through a limited company you pay corporation tax on the gain. You're not entitled to use your capital gains tax-free allowance here, however for higher rate tax payers the overall rate of tax can be lower via a limited company.

Do I still own the property when I buy it through a limited company?

Your company owns the property, and you own your company - so yes, you ultimately own the property. If you have a mortgage on the property, the lender will still have the normal rights over the property should you fall into arrears.

How do I purchase a property via a limited company?

The process is pretty much identical to buying a property personally. There are two differences: you'll need to get a mortgage specifically for limited companies, and you'll need to tell your solicitor that your company will be buying the property and needs registering as such. Both of these are straightforward processes.

Is it easy to get a mortgage via a limited company?

It's often no more difficult than getting a mortgage personally. When you're purchasing via a limited company the lenders will normally credit check you as an individual too, and well as performing due diligence on your company. The fees can be higher for limited company mortgages due to this extra step of work. Some of the interest rates can be higher too however this is often offset by the fact that the rental cover rules are different for limited companies, meaning you may be able to borrow more than a mortgage on a personally owned property. It's worthwhile speaking to a mortgage broker who specialises in limited companies.

How does tax differ between limited companies and personally owned properties?

Tax on personally owned property is straightforward: you deduct your allowable expenses from your rental income and pay income tax at your normal rate (e.g. basic 20%, higher 40% or additional 45%) on the difference - i.e. the profit. You can't claim your mortgage interest as an expense on personally owned properties. Instead, you now receive a basic rate (20%) reduction from your tax liability for any mortgage interest payments and other financing costs. This is bad news for higher rate tax payers as it will mean you have more tax to pay.

Tax on properties owned via limited companies is quite different, and far more flexible. Once again, you deduct the allowable expenses from the rental income to arrive at the company profits. However, the entire mortgage interest payment is tax allowable and will also reduce the profit, thus decreasing the amount of tax due. You then pay corporation tax rather than income tax on the profits, which is currently 19%. If you keep the profit inside the company (perhaps to save for another property) then there's no more tax to pay.

If you want to take profit out of your company and pay yourself personally, there are three main ways: pension payments, dividend payments and salaries.

Do I need an accountant?

There's no legal requirement to use an accountant, it's purely personal choice. Whilst many landlords are comfortable completing their own self-assessment tax returns for personally owned properties, most choose to appoint an accountant if they use a limited company. That's because the flexibility brings more complexity, there's a series of key filing deadlines, and having an expert on side can help you make the most of your investment company.

How long does it take to incorporate a company?

When setting up a company for Provestor clients, once we have all of the initial details, incorporation is quite quick. After submission to Companies House, the company is usually formed within 24-48 hours.

If I become a director or shareholder of an SPV, would I lose my personal first time buyer perks?

No, as the company is a separate legal entity. As long as the property you are buying in your own name is your first, the first time buyer allowances should still apply.

Start up with Provestor

Whenever you’re ready, here are 4 ways we can help you start and manage your buy-to-let limited company:

  • Tax Advice. Talk through your options and increase your confidence by booking a tax consultation with our Chartered Property Tax Advisors.

  • Company Start Up. For a smooth start and to avoid costly mistakes, our expert team can incorporate your limited company, for less than you think.

  • Accounting Tax App. Keep on top of your finances in minutes, and prepare and directly submit your accounts and tax returns, with our easy-to-use property accounting app, designed specifically for landlords.

  • Advisory Service. As your portfolio expands, the complexity of your financial needs grows too. Provestor’s Advisory Service is the next step for investors seeking a deeper level of support and tax expertise.

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