An SPV is a distinct legal entity that primarily manages specific assets and liabilities in isolation from the parent company. It ensures that the parent company’s financial health remains uncompromised by the SPV’s performance.
Additionally, investors prefer to set up an SPV when commencing a real estate investment or other financial venture. Yet, understanding the brass tacks of how to set up an SPV to buy property can be arduous, especially given the constantly changing regulations and deadlines. Hence, this blog will provide a rundown of the steps involved in creating an SPV in an easy-to-understand way.
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What is an SPV?
An SPV is a limited company primarily used in the real estate industry to purchase, hold, and manage buy-to-let properties while protecting the parent company if it is in dire straits or faces financial distress. Under the umbrella of an SPV, an investor can hold multiple properties simultaneously, allowing them to expand their property portfolio rapidly.
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Visit our blog, What is an SPV (Special Purpose Vehicle) for Property Investment?
Here, we will enumerate the steps and elaborate on how to set up an SPV to buy property.
How to Set Up an SPV to Buy Property: A Step-by-Step gGuide
Selecting the Company’s Structure:
Before proceeding with registration, it is imperative to decide the structure the SPV would have. For example, the widely practised structure for an SPV is a private limited company (Ltd). However, depending on the goals the investor wants to accomplish, there are also other suitable structures, like Limited Liability Partnerships (LLP).
Registration:
To set up an SPV to buy property, the investor must register their company with regulatory bodies like Companies House. It involves specific documentation and adherence to legal standards.
The registration includes essential steps like submission of annual accounts and declaring ownership proportions to Companies House.
Furthermore, required and necessary documents include Articles of Association and Memorandum of Association that forthrightly define the company’s business.
Person with Significant Control (PSC) :
The SPV must have the appointment of at least one director and one shareholder.
However, additional directors, shareholders or company secretaries can also be added. Also, all the relevant information regarding the directors and shareholders of the limited company must be provided.
Likewise, each shareholder should receive a percentage share of the company’s assets.
It is worth noting that any shareholder with a share of more than 25% is considered a person with significant control (PSC). Consequently, the names of PSCs, their dates of birth, service addresses and years of nationality will appear on the public register.
Selecting Company’s Name:
Next, the investor must choose a unique name for the limited company, complying with naming conventions. It is also crucial to select the appropriate Standard Industrial Classification Codes (SIC).
Choosing Standard Industrial Classification (SIC) Codes:
Standard Industrial Classification (SIC) codes in the UK show what your company does within a specific industry. For instance, determining the right SIC code reflects/depicts the type or purpose of economic activity or business associated with the SPV. Besides, using up-to-date information when selecting their SPV’s SIC code is significant for an investor. Otherwise, Company House will decline its business registration application.
The following are the relevant and recommended SIC codes for an SPV involved in real estate investment, management, and related activities.
68100 – Buying and selling of own real estate
68209 – Other letting operating of own or leased real estate
68320 – Management of real estate on a fee or contract basis
68310 – Real estate agencies
Creating a Business Bank Account:
A separate bank account must be created to set up an SPV to buy property. Next, the existence of this distinct bank account must be verified to ensure financial independence and cost-effective management of funds.
Costs Involved:
The total cost associated with setting up an SVP to buy property can approximately swing between £50 and £500, depending upon the complexity of the business and whether you will require professional assistance. These costs comprise filing fees for annual accounts and tax returns.
To determine the precise cost/figure in accordance with your situation and requirements, hire the services of a qualified accountant. Nevertheless, the benefits (i.e., tax efficiencies and risk management) that an SPV accompanies surpass the costs involved in its creation.
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Registering for Taxes:
Once the SPV has been registered with the Companies House, it must also be registered for relevant taxes, such as Corporation Tax.
Regulations Compliance:
For those who have created the SPV in the UK, It is mandatory to make it compliant with the UK regulations, including:
- Filing and submitting your company accounts annually to Companies House.
- Filing and paying the company’s tax return with HMRC.
- Confirming significant details annually with Companies House.
To seek proficient and extensive consultation on filing and paying corporation tax, contact Accounting firms, as we are well-versed with SPVs and tax services.
Final Thoughts:
With everything considered, It is prudent to seek professional guidance if you plan to set up an SPV to buy property to stay compliant with tax regulations and to evaluate any tax implications that might emerge in your specific circumstances.
Professional accountants with extensive expertise, like those at Accounting firms, will give you personalised advice and help you make rational decisions based on your SPV’s unique requirements, objectives, and the applicable legal and regulatory framework.
Thus, contact Accountingfirms without any further ado so that setting up an SPV and growing your property portfolio becomes seamless for you.
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.