A Special Purpose Vehicle (SPV) is an entity established for a specific business project or type of activity. It has its financial standing (assets and liabilities) and legal status. By using an SPV, the core activities are separated from the existing business (called the parent company) of the owner.
For a detailed analysis of all the tax benefits accompanying an SPV, read our guide: SPV vs Personal Ownership: Which is better for property investments?
If you were wondering if SPVs pay corporation tax on property income, you have stumbled on the right page.
This blog will encompass all the information relevant to the Corporation Tax that an SPV pays.
Hence, continue reading.
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Why use an SPV?
There is a series of commercial reasons for governing an SPV’s operations in a separate limited company, a few of which are:
- To keep the SPV’s projects autonomous and isolated.
- To facilitate joint ventures.
- To enable multiple investors to participate in different types of projects while also managing the financial exposure or liability
- To retain the profits and reinvest them for future property investments.
- To enable a project to obtain funds more easily.
- To disintegrate or separate the risks of the new project from those of existing businesses.
- To accelerate the project completion by integrating private sector resources.
- To avail the benefits of corporation tax and mortgage tax interest relief
- To secure a structured and risk-managed environment for the execution of a project.
Do SPVs pay Corporation Tax on property income?
Unlike the individuals who own properties personally and must pay income tax on their rental profits or gains, SPVs pay corporation tax on property income. To further explain, with an SPV, an investor pays corporation tax on the rental income or profits generated from the property.
Moreover, as of 2024, the corporation tax rate in the UK is set at 25% for companies with profits or revenues over £250,000.
Similarly, companies making profits between £50,000 and £250,000 pay a reduced rate.
Lastly, companies generating profits under £ 50,000 pay 19%.
In summary, considering the structural differences in taxation, buy-to-let investors shall face financial implications under personal ownership since the income tax rates could spike as high as 40% for high earners categorised as higher-rate taxpayers.
By contrast, setting up an SPV can offer significant tax-efficient benefits to higher-rate taxpayers under the corporation tax category in that scenario.
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Summary:
In an overview, the UK landlords opt for an SPV to reap the potential tax benefits it offers since SPVs pay a corporation tax rate on property income, which is lower than income tax.
Nevertheless, the requirement of creating an SPV arises per your current circumstances.
Hence, if your circumstances warrant the creation of an SPV limited company, it is wise to seek financial consultation from skilled accountants available on the platform of Accountingfirms. Our pledge is: Free, Fast, Secure, and Verified Accountants! We can help you navigate the complexities of property taxation and help determine whether an SPV structure is a befitting choice for your property investment.
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.