There’s a lot of confusion surrounding around what an SPV actually is – and how we use them – as well as a lot of concern around raising finance for limited companies. Whilst these may sound like separate issues, they are, in fact, part and parcel of the same subject.
So, let’s think what a Special Purpose Vehicle or SPV really is.
An SPV is really just a generic name for any entity that you choose for a particular purpose. For example, an SPV could be a limited company, LLP or partnership. It doesn’t really matter which, as an SPV is really just saying that there is an entity which has been used for a particular purpose.
Lately, many people are using limited companies for buying their properties – and limited companies can be an SPV. The thinking behind this is that as things stands today with Section 24, if you buy into a limited company you can offset all of the mortgage interest against rents when calculating corporation tax.
This is a BIG plus for putting properties into a limited company and is probably the main reason why this entity has become so popular. But there are other reasons; for example, if you want to team up with a JV partner.
Say the JV partner is putting in all the money and you’re putting in all the time and effort and have come up with a 50/50 arrangement. One way of constructing this could be to have a partnership agreement, or another could be to set up a limited company and split the shares 50/50. In effect, this limited company will become an SPV – or special purpose vehicle.
In this case, you may ask yourself: “What’s the special purpose?” Well, the special purpose is to establish a JV with your JV partner. This is the key thing to remember that sometimes causes confusion – it’s not a particular type of entity or a particular type of limited company, but instead “a purpose”.
As you’ll see if you go onto Companies House website, there isn’t the capability to set up an SPV because an SPV is not an entity. And whilst an SPV is probably going to be a limited company, it could be anything. Essentially, it’s going to be whatever you’re using for “a specific purpose” to help you achieve your goals in a safe and protected manner.
Next week, we’ll take this even further and will look into when we would use a SPV.
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, Author & Property Investor