Don’t Make These Mistakes When Setting Up Your First Property SPV Limited Company

Setting up a Special Purpose Vehicle (SPV) for property investment can be a smart move, offering investors a way to separate risk and enjoy certain tax benefits. It can also be a more efficient way to structure your property deals.

However, while the benefits are clear, the process of Set up spv property limited company isn’t without its challenges. There are common mistakes many first-time investors make, which can lead to costly errors down the line. Here are some of the key pitfalls to watch out for.

Skipping Professional Advice

One of the biggest mistakes you can make when setting up an SPV is to try and go it alone without seeking professional advice. The rules surrounding SPVs, taxes, and company law are complex, and getting them wrong can be expensive.

It’s tempting to cut corners and save money by not involving experts early on, but that’s a mistake that can come back to haunt you. Accountants, solicitors, and tax advisers with experience in property can help you set up your SPV correctly from the get-go, saving you time, money, and hassle. Without their input, you may overlook crucial details, like choosing the right company structure or failing to take advantage of available tax breaks.

Choosing the Wrong Structure

When you decide to set up an SPV company, one of the first decisions you’ll need to make is choosing the right structure. It’s easy to assume that any limited company will do, but that’s not the case. There are various options, and the structure you choose will affect everything from your tax liabilities to how you manage ownership and profit distribution.

For example, if you’re planning to buy multiple properties or involve more than one investor, you might need a structure that allows for different classes of shares or one that’s designed to handle complex ownership structures. If you don’t get this right, you could face difficulties later on, such as trouble raising funds or distributing profits in the most tax-efficient way.

Ignoring Tax

One of the key reasons many investors choose to set up an SPV property limited company is the potential tax benefits, but this doesn’t mean taxes are a simple matter. Many investors make the mistake of not fully understanding how different taxes, like Stamp Duty Land Tax (SDLT), Capital Gains Tax (CGT), and Corporation Tax, apply to their SPV.

Each of these taxes can affect the profitability of your investments in different ways. For example, SDLT is a significant cost for property purchases, and the rate can differ depending on whether the property is residential or commercial. Similarly, selling property through an SPV can trigger CGT, which is something that can easily catch out investors who haven’t properly planned for it.

That’s why it’s crucial to consult with a tax expert who understands property investment. With the right advice, you can structure your SPV in a way that reduces your tax burden and helps you maximise profits.

Failing to Factor in All Costs

Many first-time investors underestimate the true cost of setting up and running an SPV. Beyond the obvious costs, like legal fees and registration costs, there are many other expenses that need to be taken into account.

For example, when acquiring properties, you’ll need to budget for things like property surveys, legal due diligence, and Stamp Duty. Don’t forget about ongoing operational costs either, such as

property management fees, insurance, repairs, and maintenance. These costs can quickly add up, and if you haven’t budgeted for them correctly, they can significantly impact your cash flow.

Additionally, if you’re financing your SPV, it’s important to consider the long-term costs of loans or mortgages, including interest rates and fees. A poor financing decision can eat into your profits and affect the overall success of your investment.

Not Exploring the Right Financing Options

Another mistake that many first-time SPV investors make is assuming that financing an SPV is the same as financing a personal property. In reality, banks and lenders often treat SPVs differently, and you may face stricter lending criteria, including higher interest rates or larger deposits.

It’s essential to explore the various financing options available, such as buy-to-let mortgages, development finance, or bridging loans. Each has its pros and cons depending on your investment strategy, and choosing the wrong one could cost you more in the long run. Additionally, lenders might require certain security or guarantees from the company, so make sure you fully understand the terms before committing.