The advantages of an SPV

The Benefits of a Special Purpose Vehicle for Property Investment

Property investors today have an attractive option to consider when purchasing investment property assets – using a special purpose vehicle (SPV). But what exactly is an SPV and what are the main benefits of this approach?

Defining a Property Investment SPV

An SPV simply refers to a separate company that is established solely for owning a property investment. The SPV company does not trade or own any other assets, its solitary purpose is to hold the title deeds to one property investment asset. SPVs are commonly used by more substantial property investment firms and landlords with large portfolios spanning multiple properties. But smaller investors can also capitalise on the benefits of the SPV model when starting out.

Limited Liability Protection

One of the prime advantages of an SPV is it ring-fences liability. If structured correctly, only the property itself is at risk in the case of any future issues, not the personal assets of the underlying investors. This containment of risk is clearly attractive, especially for those new to property investing. Should problems arise further down the line, liability starts and ends with the SPV, safeguarding investors.

Pooling Investment Resources

Establishing a property investment SPV presents the opportunity for multiple investors to pool their financial resources. Rather than going it alone, investors can band together, whether it be groups of friends, family members or professional contacts. Contributing equity towards the SPV can effectively enable each investor to purchase a larger asset than they could afford independently. The SPV company can issue shares to all investors proportional to their capital commitment.

Not only does co-investment through a SPV spread the initial purchase risk, it also shares ongoing property management duties and associated costs. SPVs make the whole process of collaborating on an investment property simpler and more structured.

Access for Younger Generations

In the UK, individuals under 18 years old cannot legally own physical property assets. However, those under 18 can own shares. Utilising a SPV for property purchase allows investors to consider gifting shares in the SPV to younger generations – children, grandchildren etc. Transferring equity in this way can assist greatly with succession planning and helps pass on property assets to the next generation.

Tax Advantages

For landlords and property developers with larger portfolios, SPVs can provide certain tax advantages when strategically managed. However, for investors acquiring just one or two properties, potential tax benefits are more limited. Specialist tax advice from an accountant experienced with SPVs should be sought to legally minimise tax liabilities.

But some high level tax efficiencies can include:

– Offsetting profits from one SPV property against another in the portfolio

– Transferring income-generating assets into an SPV to utilise corporation tax rates

– Mitigating stamp duty land tax (SDLT) charges when transferring existing properties into a new SPV

Each case will differ depending on the underlying property assets, overall investor financial affairs and approach taken. Professional taxation guidance is essential in this nuanced area.

Access to Finance

Lenders and banks will commonly require personal guarantees from directors when lending to newly formed SPV companies with no financial track record. However, once a strong history of managing SPV property investments is established, and equity built up in existing assets, new financing can become easier to secure. This enables building a property empire over time.

Many lenders may also allow taking equity out of one SPV-owned property to fund deposits on additional property purchases. So the SPV route can facilitate access to finance for those disciplined investors with experience under their belt.

Administering Property Investment SPVs

With notable benefits realised, actually setting up and administering an SPV carries responsibilities too. Strict legal and financial governance must be continually upheld. Trusted professional support is advisable here.

Investors should consider enlisting an accountant and legal counsel well-versed in SPVs to ensure:

– Correct company formation protocols are followed
– Shareholder agreements drafted to safeguard all investor interests
– Annual accounts and compliance duties filed without fail
– Ongoing obligations around insurance, safety certificates etc. kept up-to-date

The administrative intricacies of running an SPV make experienced third-party guidance invaluable. Property asset managers can also handle practical day-to-day management, or this role may appeal to certain investors.

I advise and support clients on all aspects of SPV legal frameworks, financial administration and property management functions. Please reach out to discuss your specific investment plans further.