Tax and contracting News
07 - 05 - 2021
As the pandemic has impacted peoples lives, clients have been looking at broadening their savings/assets. Many have been looking at property investment as a way forward. We advise on a case by case basis, but if this is something your considering read our 'Advice Note' below on a Special Purpose Vehicle (SPV) Company which we hope you find interesting.
Advice Note
Special Purpose Vehicle (SPV) Company
What is a SPV?
An SPV company is a limited company that is set up specifically for one type of trade. The term SPV is most commonly used within the rental property industry by mortgage providers for a company with the sole purpose of purchasing and managing Buy To Let Properties.
What is the difference between a SPV Company and a Limited Company?
There is no difference in terms of reporting and taxation between a company set up as a “Special Purpose Vehicle” and a “normal” limited company.
What are the advantages of a SPV Company?
1. Taxation of Profits
Buy To Let Properties bought personally are taxed as part of the individuals personal income. This means that any profit is taxed under income tax and any disposals of property are taxed under Capital Gains Tax in the year of disposal. Personal income tax rates, including for Capital Gains Tax, are currently (2021/2022 basic rate 20% and higher rate 40%.
Buy To Let Properties bought by a company are taxed as the company’s income. This means that any profit from rental or disposal is taxed in the year under corporation tax. The Corporation tax rate is currently (2021/2022) 19%.
You should be aware that the Government have announced their intention to raise corporation tax rates to 25% by April 2023.
2. Interest
Interest paid on a mortgage of a Buy To Let Property is being phased out as a tax allowable expense when calculating personal income. However it is tax allowable when calculating the taxable profit of a company.
3. Income
You can control when you take your income from your company. As with all limited companies the SPV limited company is a separate legal entity. An individual pays income tax when they withdraw income from the company whether that is as salary, as an employee / director and/or dividend as a shareholder.
4. Mortgage
Some Buy To Let mortgage providers prefer lending to a company that is specifically established to hold property. The reason being is that they regard the SPV as easier to understand and underwrite with less risk.
What are the disadvantages of a SPV Company?
1. Mortgage
Interest rates may be higher on a mortgage to a company. Lenders may also require personal guarantees from shareholders and/or directors to personally repay the loans if the company fails to.
2. Existing Properties
The transfer from personal ownership to the company ownership will be regarded as a sale for the individual. The individual could be liable to Capital Gains Tax, legal costs, etc.
3. Sale of Property
When a company sells a property there is no capital gains tax the company is taxed at corporation tax rates. An individual when disposing of a property should receive a capital gains tax allowance currently (2021/2022) £12,300 on which there is no tax.
Can there be more than one property in the SPV Company?
Yes. There can be multiple properties within the SPV Company.
If you would like to discuss any of the issues noted above please contact us on:
01244 625 500 or 01978 364 000
contactus@foremansllp.com
Whilst all due care and attention has been taken in the preparation of these notes no liability
can be accepted for any omission or item contained therein.
Foremans LLP
April 2021
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UMBRELLA COMPANY
AGENCY INFORMATION
Assumptions
General
- The user is over 21 and subject to tax in the UK
- The user wishes to minimise their tax liability
- The user is subject to national insurance i.e.he/she is not over retirement age
- Only current tax rates and limits are applied
- No tax mitigation payments are made e.g. pension contributions
- Only 3 digit letter 'L' tax codes shown in the drop down list can be entered
- The user does not have a turnover greater than £100,000 where fewer reliefs and or higher taxes may apply
Expenses
- All miles claimed as expenses are for business use using a personally owned car or van
- All other expenses claimed are wholly, necessarily and where appropriate exclusively for the benefit of the business
Foremans LLP Charges
- Foremans fees associated with Limited Company, Sole Trader or Umbrella are as per published rates
- Foremans current Service Costs are allowed for in all calculations.
Holiday Pay
- Holiday pay is accumulated week by week by Umbrella or Agency employer but paid out during the year
VAT
- Limited Company or Sole Trader will be VAT registered
- Limited Company or Sole Trader will take advantage of Flat rate VAT
- Flat rate applied includes the benefit of the additional 1% applicable to the first year of VAT registration
Limited Company Conditions
- One director / one shareholder in a Personal Service Company
- Director of Personal Service Company elects to vote for 100% dividend after salary, costs and expenses
- Director's salary is maximum salary to the primary threshold for NI
- The Limited Company is trading normally i.e it is not subject to IR35 and is not a Managed Service Company
NOTES
- The Current tax rates are taken from the Fixed Data Table
- The current Value Added Tax Rate is 20% and is applied to all invoices and expenses as appropriate
- The Director's Salary is fixed in relation to National Insurance thresholds. Higher Rate Taxpayers should consider the advantages and disadvantages of a larger annual salary or bonus
- Higher Rate Taxpayers may wish to consider the advantages and disadvantages of shared ownership of their business
- Users with a tax code other than three digits and letter "L" may telephone or email our Development Department to request a detailed calculation
- Generally the use of an Umbrella rather than an Agency payroll is only efficient if sufficient weekly expenses are allowable and claimed
- The expenses claimed under an Umbrella should not prevent the proper operation of National Minimum Wage
Dave Wilde, Foremans (UK) Limited
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