A Special Purpose Vehicle (SPV) is a standalone legal entity created by an individual, a company, or a group of investors to accomplish a certain objective. It includes isolating a specific business activity from the core operations, like ring-fencing assets and property investment. This guide will pivot around all the associated costs of setting up an SPV in the UK and the legal and financial factors investors must heed before establishing an SPV.
Moreover, an SPV can operate as a distinct entity or a subsidiary of the parent company. This separation highlights that while connected, an SPV is autonomous of any pre-existing obligations and liabilities of the parent company.
To learn further about the reasons and benefits an SPV is popular with investors, read the benefits of using an SPV for buy-to-let investments.
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How much does It cost to set up an SPV in the UK?
Typically, the costs involved in setting up an SPV in the UK depend on several factors, like online registration or professional assistance. Here’s a summary of the costs of creating an SPV the investors must be mindful of:
Formation costs:
The main cost is usually the fee for establishing the SPV as a limited company. Next, other setting up costs cover the expenses in forming and operating the SPV, like administration support, tax reporting, record-keeping.
The SPV pays these formation costs when it runs and before investing in the target portfolio company. The setting up costs vary depending on the structure’s complexity, the service provider chosen, and any additional services.
Furthermore, investors indirectly pay a proportional portion of the administrative costs associated with their interest in the SPV. It is important to emphasise that setup costs do not include state regulatory fees, which are variable and paid to state security regulators to cover the obligatory notice filing cost.
Registration cost:
The cost of registering a Special Purpose Vehicle (SPV) in the UK through Companies House primarily starts from around £12 for simple online registration. However, it goes to several hundred pounds in case the services of the professionals like accountants and lawyers have been hired.
While the online option is both simple and inexpensive, we recommend using a professional. Setting up an SPV incorrectly could lead to future problems with HMRC and may restrict who lends your company a mortgage.
Registered office costs:
Every limited company like an SPV in the UK must have a registered office address. For this, you can use your own address or acquire a registered office service. Minimally, it can cost you around £50 to several hundred pounds per year.
Legal expenses:
Likewise, based on its complexity, there will also be legal costs of setting up an SPV in the UK. For example, to secure legal advice on SPV’s structure and documentation, for drafting legal agreements (like shareholder agreements, and loan agreements), the possible fees could be over £1000.
Notably, creating and managing an SPV is more complicated and pricey than running a company with regular trading activities. Therefore, you should seek expert legal and financial advice before pursuing this course of action.
Accountancy costs:
SPVs in the UK should generally expect to allocate between 2% to 5% of their revenue on accounting services. Nevertheless, this percentage can differ widely by industry, SPV’s size, and its structural complexity.
In addition, the cost of hiring accounting services for an SPVin the UK can vary based on the following factors:
- The size of the business, like, monthly accounting fees can start at under £50 for smaller businesses.
- The complexity of the accounting, i.e. whether the hired services include only financial consultation, personalised tax advice, or appointing a skilled accountant to carry out the obligations concerning an SPV.
- The services required, such as tax filings, and monthly/quarterly reportings.
Significantly, accountants play a pivotal role in maintaining financial health and compliance obligations. Plus, investing in proficient accountancy services offers SPV several benefits,
including:
- Seeking expert guidance mitigates risks and helps in strategic decision-making.
- Staying compliant with constantly evolving financial regulations is essential for preserving a reputable standing.
- Outsourcing accounting services allows business owners to focus on core business functions, saving time and resources.
Bank account charges:
A business bank account for the SPV is indispensable for conducting financial transactions. Also, some banks can charge fees for account setup. Consequently, the costs of setting up an SPV in the UK also include the fees for bank account creation and maintenance.
Property and assets transfer costs:
If a property is transferred into the SPV, Stamp Duty Land Tax (SDLT) may apply based on the value of the property.
If the assets are transferred with capital gains, Capital Gains Tax (CGT) may be payable.
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Concluding remarks:
Over the years, SPVs have become immensely popular with property investors owing to the cost-efficient, practical, and viable solutions they offer. Accordingly, at Accountingfirms, we extend all-embracing property tax, accounting, and investment consultancy to help address all your apprehensions regarding an SPV. Our certified accountants will guide you at length on all the costs of setting up an SPV in the UK and tax compliance obligations.
Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.