The UK rental market has become complex, prompting many landlords to move away from personal ownership towards corporate structures. This can improve tax efficiency and protect their investments. If you are looking for an opportunity to reduce tax payable, learning how to transfer property into SPV can be helpful.
This guide explains what a Special Purpose Vehicle (SPV) is, the costs, and the reasons for moving assets into a limited company. Read this guide thoroughly to learn how to optimise your investment and tax strategies.
What is an SPV Property Structure?
SPV is simply a limited company created only to manage and hold property. It is different from a standard trading company. There are no employees or unrelated business debts, and that is why it is a preferred structure for mortgage lenders.
To know all the steps involved in creating the SPV, visit our blog: How to Set Up an SPV to Buy Property.
What is the Purpose of SPV?
The primary reason why a landlord transfers their property into an SPV is to save on taxes, for portfolio growth, profit retention and many more. When you transfer your property into an SPV, you can deduct 100% of mortgage interest as a business expense. You pay the Corporate Tax of 19%-25%, depending on the profit levels. Whereas an individual landlord cannot deduct mortgage interest from their rental income before paying tax, they still receive relief.
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How to Transfer Property into SPV: Step-by-Step Guide
Many assume that transferring property to a company is as simple as changing the name on the title deed. However, it is not true. Legally, a property owner or an investor is selling the property to their own company.
Let’s discuss the steps and help you with your query on how to transfer property into SPV:
Establish the SPV
The first step involved in transferring property into SPV is incorporating a new limited company at Companies House. You must use the correct Standard Industrial Code (SIC) to ensure you can access buy-to-let mortgages. Most lenders use specific SIC codes to ensure the company is recognised as an SPV. The typical codes they look for are:
68100: Buying and selling of one’s own real estate
68209: Other letting and operating of own or leased real estate
To learn more about the SIC codes for your company, visit the official website of Companies House.
Professional Valuation
When looking at how to transfer property into SPV, the important step to take is obtaining an HMRC-compliant valuation.
After incorporating as a new limited company, an RICS (Royal Institution of Chartered Surveyors) is strongly recommended for CGT defence. This helps you determine the current Fair Market Value.
HMRC (HM Revenue and Customs) uses this value to calculate the tax, regardless of the actual price the company pays you.
Secure Limited Company Finance
Your existing personal mortgage cannot be transferred. You must apply for a limited company buy-to-let mortgage. The tax savings frequently offset the additional interest cost because the specialised mortgages usually have higher interest rates than a personal mortgage.
Legal Documentation
Appoint a solicitor to manage the official process of transferring property ownership (conveyancing). A solicitor will draft the Sale and Purchase Agreement (SPA) and handle the recovery of your personal mortgage. They will also help you register the SPV’s ownership with HM Land Registry.
Report to HMRC
After conveyancing, you must report the sale to HMRC and pay Capital Gains Tax (CGT) on any increase in the property’s value. Under HMRC tax rules, you must report and pay residential property gains within 60 days of completion.
Moreover, an SPV must file Stamp Duty Tax (SDLT) returns and pay the tax. You must pay it based on the market value, including the 5% surcharge for additional properties.
Remember to file the SDLT return and pay tax within 14 days of the effective date.
For more information on SDLT and residential property rates, visit HMRC’s official website. Now that you know how to transfer property into SPV, let’s discuss the cost of transferring property to a company.
Cost of Transferring Property to an SPV
Since transferring a property to a Special Purpose Vehicle is legally a market-value sale, it can be expensive. It triggers high upfront costs depending on property value, existing gain, SDLT band and mortgage balance.
The largest expense is SDLT. As an SPV, you must pay standard residential rates, plus a mandatory 5% surcharge on the full market value.
Moreover, you pay Corporation Tax on capital gains, if any are made from selling residential property. The current rate for Corporation Tax is 19% for profits under £50,000 and 25% for profits over £250,000. Other professional fees include:
- Solicitor fees
- RICS valuation fees
- Mortgage costs
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.
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.
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.
What are the advantages/disadvantages of an SPV?
Another important step in learning how to transfer property into SPV is knowing the pros and cons of transferring property into SPV.
Transferring property into SPV is a long-term strategic move. It comes with the tax benefits on the monthly income. However, the increased administration and the upfront costs are the primary cons.
Advantages of an SPV
Here are the advantages of transferring property into SPV:
- You pay lower Corporation Tax on profits. This tax is lower than 40% to 45% Income Tax rates that many landlords face.
- Your buying power for your next property increases faster because you don’t pay personal income tax on the turnover used to pay the mortgage.
- You can choose how to take money out or keep profits within the company to buy more assets without paying tax.
- You can deduct 100% of mortgage interest from rental income before paying Corporation Tax.
- It is often easier to pass the company down to family members. After then you can transfer physical property, helping to reduce Inheritance Tax (IHT).
Disadvantages of an SPV
Some of the disadvantages of transferring SPV are:
- It comes with higher upfront costs. SPV must pay CGT and SDLT.
- Limited company mortgages have higher arrangement fees and higher interest rates
- It has a more administrative burden as it includes filing annual accounts with Companies House and submitting a Corporation Tax return to HMRC. Moreover, if you take a salary, you must potentially manage Pay As You Earn (PAYE).
- If withdrawals are not managed correctly, you could be taxed twice.
- The names of the shareholders and directors are public record at Companies House, so there is no privacy.
Although there are cons in transferring a property into an SPV, the pros cannot be ignored.
Gifting a Property to a Limited Company
Gifting a property to a limited company is a legal transfer where the investor or landlord moves the property into the company’s ownership for no financial consideration.
However, even if the property is labelled a gift, HMRC treats the transaction as a sale at full market value for tax purposes. This is because they are connected to the company they control.
Can I Sell My Property to Limited Company for Free
Yes, you can legally transfer your property to your own limited company for £0 consideration. However, SDLT may apply based on debt or if a mortgage exists.
Moreover, you cannot avoid the standard tax liabilities by lowering the sale price because you are connected to your own company.
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Transferring Property to Family Members
If you want to transfer your property to one of your family members, you can do this through a transfer of equity. A transfer of equity is often subject to SDLT, depending on the mortgage debt. It may also trigger immediate CGT based on market value.
Can I Live in My SPV Property?
Another commonly asked question after how to transfer property into SPV, is “Can I live in my SPV property?” The answer to this question is yes. You can live in a property owned by your SPV.
However, it is not recommended due to severe tax consequences. One of the main reasons is that it triggers the Annual Tax on Envelop Dwelling (ATED) if the property’s worth exceeds £500,000. It doesn’t matter if you are not making money or renting it out; living in it makes the company pay the charge.
Since most SPV mortgages are “buy-to-let contracts, living in the property yourself may breach buy-to-let mortgage terms and can invalidate the mortgage agreement. HMRC treats your residence as a Benefit in Kind, and it taxes you personally on the property’s market rental value. Moreover, you may have to pay Corporation Tax on chargeable gains.
The Bottom Line
If you are thinking of transferring your property into an SPV, then it is a wise decision. By transferring your property into a legal entity, you protect your assets and simplify property management. Most importantly, you improve tax efficiency.
However, understanding how to transfer property into SPV requires careful consideration and planning. You can do this effortlessly with the consultation of professionals with accounting and tax expertise.
It is always best to consult a tax advisor before initiating a transfer to ensure the numbers work for your specific portfolio. Visit our website, AccountingFirms, to understand how to transfer property into SPV. Our professionals have extensive knowledge of tax who handle the entire tax process effortlessly.
Reach out, get an instant quote, and let us help you stay compliant!
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.