Why do people buy properties through a limited company?

There is no simple answer to this question, people hold property within a company for all sorts of reasons.

These could include:

CREATING A PROPERTY BUSINESS

If you hold properties within a limited company then any unused profits could be put towards another property, helping to grow the portfolio in a tax efficient way. You may also be able to sell the company at some future point, as a holiday property portfolio business.

SEPARATION OF ASSETS

Holding property via a company will provide a degree of separation from other assets and liabilities.

PERSONAL TAX

There can be personal tax benefits for an SPV company to own your property, you must always verify this with an accountant. But one important principle of a limited company will always be possible. If the company makes a profit you do not have to receive this as inicome and therefore pay personal tax on it. The profit can be left within the company, a great tax planning opportunity.

INHERITANCE

It may be a useful part of inheritance tax planning, allowing future generations to benefit.

MAXIMISING TAX ALLOWANCES

Due to the Section 24 changes which mainly affected buy to let investments many property investors are now moving over to the SPV model. Residential buy to let landlords are no longer able to deduct their mortgage costs from their property income when calculating profits. They will instead receive a basic rate reduction from their income tax liability.

How are holiday let mortgages affected?

One of the great benefits of a holiday let property is that it has the opportunity to qualify as a Furnished Holiday Let (FHL). A FHL enjoys many tax breaks which are not available to buy to let investment properties.

One important break is the ability to fully offset your mortgage interest costs against the rental income, thus reducing your profits and the potential tax bill.

There is no requirement for you to own your property within a limited company or Special Purpose Vehicle (SPV) to make these deductions.

So if maximising your mortgage interest relief is top of your list you don’t necessarily need an SPV to accomplish this. As long as the holiday accommodation qualifies as a Furnished Holiday Let you will be able to deduct all of the interest charges.

When would I need a Limited Company holiday let mortgage?

If it is your intention to purchase a holiday home within an SPV Company then your mortgage will need to come from a lender that accepts applications from Special Purpose Vehicle Companies.

As an established broker in this market we have a number of choices available to borrowers.

What is a Special Purpose Vehicle?

An SPV, or Special Purpose Vehicle, is a generic name for a legal entity that is created for a narrowly defined purpose, as indicated by their SIC Code. Within property investment they are used for purchasing and holding residential buy to lets, holiday lets or for property development.

SPV’s are mostly set up as a private limited company but it could also be a Limited Liability Partnership (LLP), Public Limited Company (Plc) or other business types.

SPV is a term used within the mortgage and property world for sole purpose companies and therefore may not be a term that everyone recognises.

What mortgages are available?

There are a number of lenders accepting applications from SPV Companies so there is plenty of choice.

Generally the maximum loan to value is 75% and the loan will be calculated according to the holiday let rental income.

You will have the normal choice of repayment method. ie Interest only or repayment. Interest rate products will vary from lender to lender but variable, tracker and fixed rates are available.

When applying for this type of mortgage the Limited Company/SPV is the mortgage applicant and the property owner.