SPV’s: The Complete Guide (2019)
Last updated 24th June 2019 • JaeVee Marketing • JaeVee
What is an SPV?
Our definition of an SPV is a special purpose vehicle, which is a separate legal entity created in order to fulfill a specific, time limited purpose and isolate financial risk.
- It’s a brand new entity without the parent company’s history or baggage - unburdened by disputes or unpaid charges.
- Mortgage lenders are more confident with SPV’s because the area of business is so restricted.
- This means they usually relax the stress testing and allow you to maximise your borrowing.
- If the parent company goes bankrupt, the SPV can carry on its obligations.
- You can use the same SPV for as many properties as you like. This allows you to reduce admin costs and build a large portfolio inside one entity. You have more flexibility buying multiple properties with an SPV.
- Not every lender will entertain an SPV purchase. The ones who do are usually more specialist buy to let or commercial lenders.
- Investors have to go through the SPV terms and agreements without having any direct individual influence. They may be reluctant to put their faith - and money - in the hands of SPV managers instead.
- Creating an SPV entails additional costs and legal regulations if made by a startup.
- Due to a restricted market and additional work involved, SPV mortgages have more expensive rates and fees than personal loans.
Why we use them
- Creating an SPV allows us to legally isolate the risks involved with our profits. As the developer, we then share the risks with our investors.
- An SPV gives us greater access to our assets. If we want to sell these assets, we can sell the SPV as part of an acquisition and merger process.
- It allows us to secure our loans and separate them from our other obligations.
How you can set one up
You have to register as a limited company through Companies House.
This will take a number of minutes to complete, and your company may be incorporated in just 3 working hours. You will also need at least 1 director and shareholder.
This will require you to file under a specific sic code that you can find here. Most investors will be looking for a SIC code from Section L: Real Estate.
Then you will be set up to operate as a limited company.
Now you can start to trade and apply for mortgages with your SPV.
Things to consider
- Always check the requirements of your mortgage lender before setting up a company. They may have specific object requests that will affect your SPV.
If you’re starting up an SPV with a joint venture partner, they are more likely to analyse you and your partner’s reliability than decide whether or not to lend based on it being an SPV.
An SPV is subject to stamp duty and capital gains tax.
If you dissolve the company, you might have to face double the tax - currently 20% of profits within the company and an extra tax when money is withdrawn from the company.
SPV’s have the legal obligations of a limited company (e.g. annual accounts and tax return, confirmation statements) and are subject to strict guidelines from the FRC (Financial Reporting Council)
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Please note: This blog post is not to be considered as investment advice. We recommend you seek independent financial advice and conduct your own due diligence before making any investments.