Making investments in private companies carries inherent risks, the most notable of which is the limited liquidity of such investments. To go further, investors can often get stuck into a financial commitment for an extended period, with no possibility of receiving any returns. This article encompasses the working dynamics, common situations, and key considerations connected with how to transfer property into an SPV.
However, there are fortunately solutions available for investors pursuing flexibility in managing their investments. The most workable option is the use of Special Purpose Vehicles (SPVs). Simply, an SPV is a legal entity (mostly a limited company) created solely to hold property(asset).
Operating autonomously, SPV isolates or securitises a parent company’s assets, with its assets, liabilities, business operations, and financial standings separated from the parent company. Consequently, it limits the parent company’s financial exposure by shielding its assets in case of financial distress.
Moreover, asset transfers specifically refer to the movement of properties into and out of SPVs that legally hold purchased/acquired assets.
Understanding how to transfer property into an SPV plays an instrumental role in optimizing investment and tax strategies.
To know all the steps involved in creating the SPV, visit our blog: How to Set Up an SPV to Buy Property.
An SPV is a widely used tool for transferring property:
Individuals and businesses often use SPVs for the purpose of transferring properties. By doing so, they can isolate their property holdings from other investments or operations, offering enhanced control over the assets and finances. Notably, while an SPV is a distinct legal entity, the individual or company governing it still retains ownership via shares or interests in the SPV.
How to transfer property into an SPV: A step-by-step guide:
The following are the steps involved in transferring property into an SPV:
Setting up the company:
Transferring a property into an SPV begins with setting up the SPV. It begins with selecting the company’s structure. (i.e., the structure the SPV would have). For example, the widely practised structure for an SPV is a private limited company (Ltd).
Then comes the essential step of registering the SPV.
The investor must register their company with regulatory bodies like Companies House, which involves specific documentation and adherence to legal standards.
Similarly, submission of documents like Articles of Association and Memorandum of Association that clearly outline the company’s business is mandatory.
Next, the investor must choose a unique name for the limited company to comply with naming conventions. It is also crucial to select the appropriate Standard Industrial Classification Codes (SIC).
Thereafter, the SPV must have the appointment of at least one director and one shareholder. It is worth emphasising that any shareholder with a share of more than 25% is considered a person with significant control (PSC).
In order to know all the steps involved in creating an SPV, read our blog: How to set up an SPV to buy property?
Determining/Calculating the property’s value:
Another significant step in learning how to transfer property into an SPV is determining the current market value of the property. It typically entails conducting a formal property valuation with the help of a professional who holds expertise in real estate appraisal.
By carrying out the valuation, the investor not only determines the correct transaction amount but also ensures that the property transfer occurs at a fair market value. Consequently, it safeguards the interests of all the shareholders involved.
Transferring the legal title:
After setting up the SPV and determining the property’s market value, you must legally transfer the ownership of the property to the SPV. It involves three steps, which are as follows:
Drafting a transfer deed:
A formal deed of transfer is drafted, which states the details and the terms of the transfer, including the agreed price or value of the property.
Registering the property transfer:
In many jurisdictions, it is mandatory to register the transfer of property with the land registry or other governing body concerned. As a result, registration ensures that the SPV is officially listed as the legal owner of the property.
Considering stamp duty and taxes:
The property transfer may be subject to stamp duty or other taxes in accordance with your jurisdiction. Furthermore, consulting with a tax professional, such as those listed on Accountingfirms, is crucial in determining any costs associated with the transfer.
Funding/Financing the transfer:
If you’re not transferring the property entirely as an equity investment, you will have to secure financing for the SPV. It includes:
Acquiring a mortgage:
The investor secures a commercial mortgage to finance the property acquisition. Notably, the SPV will act as the borrower here with the property put up as collateral for the mortgage. Now, the investor approaches lenders and submits an application. This application contains the details about the property, SPV’s financial projections and the objectives it aims to accomplish.
Further elaborating, putting up the property as collateral signifies that the lender will determine the loan (mortgage) amount by assessing the property’s value.
Securing capital contributions from shareholders:
Alternatively, the shareholders of the SPV can inject the necessary capital into the SPV to fund the transfer. It is typically done through the issuance of new shares in the SPV.
Notifying the relevant authorities:
After transferring the property to the SPV, you may be required to notify various authorities of the change in ownership. The authorities concerned include the tax office and local land registration. Moreover, you must ensure that property-related registrations, like rental licenses and insurance, are updated to show the SPV as the new owner.
Considering the tax and legal implications:
Finally, it is vital that you stay aware of the following implications when transferring a property into an SPV:
You may incur capital gains tax on the property transfer if it is not a like-for-like or comparable transfer. However, it depends on your jurisdiction.
One key benefit of understanding how to transfer property into an SPV is that it offers more viable options for inheritance tax planning.
To exemplify, transferring businesses (properties) to family members and future generations under an SPV structure is a tax liability-free deal.
Likewise, the SPV must ensure ongoing compliance with legal and financial obligations after the property’s transfer, including annual filings, accounting, and corporation tax payments.
Advantages of transferring property into an SPV:
Streamlined compliance:
By undertaking the formal appraisal/assessment to determine the property’s current market worth, stakeholders can avert potential disputes and ensure compliance with relevant financial regulations. Ultimately, it facilitates a smoother and simpler transfer process.
Asset Protection:
An SPV protects your assets from property-related obligations. For instance, if the property suffers financial or legal distress, your assets (personal wealth) are safeguarded.
Protection from inheritance tax liabilities:
After the transfer, the property is held/owned by the SPV company rather than individuals. Subsequently, it remains safeguarded from inheritance tax liabilities, like stamp duty, inheritance tax, and capital gains tax. Hence, owning a property under an SPV structure is a more tax-efficient way of protecting your assets and passing them on to family members.
Besides, it is easier to transfer property ownership to heirs or other beneficiaries with an SPV. This is because the shares of the SPV can be transferred rather than the property itself.
Convenient financing:
Another major benefit of knowing how to transfer property into an SPV is the easier financing. To explain, banks and lenders are usually more inclined to provide funds/finances to an SPV than individuals, especially for larger property portfolios.
Conclusion:
In an overview, transferring property into an SPV is a wise decision for individuals looking to protect their assets, bolster tax efficiency, or simplify their property management.
Nevertheless, understanding how to transfer property into an SPV requires meticulous planning and consideration, which can only be done seamlessly with the consultation of professionals with tax and accounting expertise. The accountants listed on the Accountingfirms website will help you navigate the entire process pertaining to an SPV effectively.
Hence, achieve your financial goals with optimal tax advice with us.
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.