Setting up an SPV for a Property Purchase

May 9, 2018 by

An SPV is the acronym for a special purchase vehicle, which has the specific purpose of achieve a goal. One of the most common questions asked is why and when should it be used? Let’s just recap, an SPV can be many things, a LLP, a limited company or a partnership or indeed any other type of entities who would wish to raise funds for property investment.

One example of using an SPV would be if you were to enter into a joint venture with a partner, this could be one of the partners being a silent partner, or one partner putting in the time or the money – it really makes no difference as long as both parties are in agreement of the end result and both or all partners are happy and feel protected within the agreement. Of course, many things would be taken into consideration, if you should form a limited company, a straightforward partnership and whatever form it takes it should always be total agreement between the partners.

With the changes in Section 24 regarding tax you may agree to use a SPV to circumvent these changes, buying properties in a limited company name enables mortgage interest to be offset against your taxable income.

Banks will decide, when you make an application for funding, if the SPV is the type they wish to lend to, there are no rules when it comes to this, it matters not if you are a limited company, LLP or joint venture partnership. But what they will be looking at is you and your partner in the SPV and if the bank likes what they see.

So, what do the banks look for when you make an application – they will consider the SPV and if it is something they deem viable for them as a banking institution.

The question I am often asked is if a SPV should be put in place with every new property purchase, of course there will be different views held on this by lenders or accountants but personally, I believe it depends if you are purchasing in your name only, or, on the other hand are you buying a number of properties and wishing to build a portfolio, that may well be a case for just one SPV especially if the properties are going to be in your name or with a partner.

However, if you are considering in the long term entering into multiple joint ventures with various partners then it would be more advisable to “ring fence” each of the ventures in a separate SPV each created for that particular venture.

Always sit down with your accountant and tax advisor so they can discuss the options open to you and can ensure you are doing the right thing and going through all the options will allow them to give you the implications so that from the start you are you are avoiding potential problems further along the line which could be very costly indeed!

FJP Investment is a property investment company sourcing a wide range of investment opportunities both in the UK and overseas.

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