Property SPV vs. Personal Ownership: Which Property Investment Structure Is Right for You?

Personal ownership is the usual way of owning a property on your own. You are liable for your finances and face the risks of being personally liable for any debts and loans. Paying a higher tax than companies usually makes it less attractive to higher-rate taxpayers.

Property SPV (Special Purpose Vehicle) is a company you set up to handle your finances. It is a legal entity that is usually created for a specific purpose. Acting as a shield for you, it takes upon all your liabilities, mortgages and financial risks that come with them. SPV is one of the most preferred choices of investors, and it is thriving in today’s market.

Burning Question

But is SPV the best path for your property business to take? The answer isn’t so simple. It might be like that trendy dish everyone is talking about—looks appealing at first, but once you try it, you realise you are allergic. Hence, finding out what is best for you is the key to beginning your journey to success.

Let us look at a few differences between what your property income faces when you own it personally and when it is by Property SPV. Confusion may arise, but we are here to help you choose.

A few bases must be researched before choosing between them. Let us talk about them.

Corporation or Income Tax

This is the most considered difference between SPV (Special Purpose Vehicle) and personally owning a property. When investors use SPV, they must pay corporation tax on the rental incomes and profits earned. The rates are 19% for a certain range and go as high as 25%.

In another light, when you own it personally, you pay income taxes on your property income and profit. It goes from 20% to 40% and as high as 45%, which may be a huge tax for you.

In short, looking at the taxes and their rates, SPV is a better option than owning it personally.

Tax Efficiency

As mentioned above, the corporation tax paid by SPV is less, which makes it tax efficient. Not just a corporation tax. Shareholders can also receive dividends with a £500 nil rate band. While paying tax rates of 8.75%, 33.75%, and 39.25% are still less than income taxes.

While income taxes are paid when you own it, there is no mention of any nil rate band or lesser tax rates.

Tax efficiency also directs you to SPV as it makes it very easy and less.

Mortgage Interest Tax Relief

Using SPV will allow you to deduct your mortgage interest fully from your taxable income. Simply, it means that investors can deduct their mortgage interest costs in whole when calculating their taxable profits for corporation tax. Lenders also prefer SPV for mortgage loans.

In the case of personal ownership, you are supposed to have no deductions on mortgage interest but may receive some percentage of tax credit, which usually is less beneficial. Lenders also find it riskier to lend out their money to individuals. Hence, getting mortgage loans may be difficult for personal property owners.

Supporting that SPV is the path you take out. You can always reach out to us.

Inheritance Planning Benefits

Another major difference between SPV (Special Purpose Vehicles) and Personal Ownership is that SPV makes transfers tax-free. It can be a bit hard to believe, but it is true. Transferring properties considered business is easier, and they are not liable to any inheritance tax.

On the other hand, owning and handing a property to your kids will bring you a huge inheritance tax. This will also invite other taxes like stamp duty tax and capital gains tax, as described earlier.

If your future planning includes transferring your property business to your kids or anyone close to you, then SPV is the deal for you.

Liability Protection

Your property business often needs various kinds of mortgage loans and other types of liabilities. Would you like to be personally liable for all these liabilities? If no, then SPV is there for you. It is a limited liability company that takes accountability for its liabilities.

However, if you own properties personally, you must be the backup plan your lenders will look for. If your property business cannot cover the liabilities, then the lenders will make you pay the interest and all other bills.

If these points make you want to set up your SPV, you can check out our full guide.

Administration

This might be a bit different from the above points.

When you own the property personally and start doing business without any SPV, you can put all your property income as a non-saving income in your income tax liability computation, which is quite easy to calculate despite the high tax you are going to pay.

Starting your own SPV may cost you time and money, but we are always there to help you. SPV may cost you a bit initially, but later, you can enjoy all the benefits it will bring you. This step can easily be avoided if you contact us. We help you with everything from documents you lack to forms you need to fill out.

Conclusion

 The choice lies with you whether you want to forward your business through an SPV or own it yourself. Many ways lead you to SPV due to its tax benefits and other financial merits, which one seeks the most when starting a business in any field.

SPV for property owners is the new upgrade we all should take, and administration is quite easy with the right guidelines and help. You can read our full guide about how to set up an SPV, and if you still face any confusion, you can take out the 15-minute free call option for this. We have the best accountancy professionals and tax advisors here.

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