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Where Taxpayers and Advisers Meet

Quick query on SPV to purchase investment property

Joined:Sat Sep 18, 2010 3:05 am
Quick query on SPV to purchase investment property

Postby Unclened » Sat Nov 09, 2019 12:57 pm

Hi all,

I am an additional rate tax payer and my spouse is an unemployed home maker. I am thinking of setting up an company/SPV to invest excess savings into a residential investment property, that I would ultimately like to gift to my children when they are 25ish (currently 9 & 7). I am flexible as to making myself, my wife or both of us as shareholders in the PropCo.

I intend to take out an interest-only mortgage and use the excess income from rent each month to pay down the mortgage, in effect treating it like a repayment mortgage. I don't intend to withdraw any excess income from the property or PropCo. Property price is approx. £350k, with mortgage payment of £750 and rental income of £1200-£1300. I also expect at some point after the first 5 years to convert to a normal repayment mortgage.

Therefore I would be grateful if anyone could provide an initial steer on what the tax treatment will be of the residual rental income used to pay down the loan?

Joined:Tue Sep 26, 2017 6:28 pm

Re: Quick query on SPV to purchase investment property

Postby AdamS93 » Sun Nov 10, 2019 10:59 am

The company will pay corporation tax on its profits. The mortgage repayments are not an expense of the company, like the receipt of the mortgage is not taxable income.

You would be best advised to engage an accountant as there are some strange rules when letting property via a company that often go against common sense and a little knowledge is a dangerous thing.

Probably worth forward planning looking to the plan transfer to your children as well to reduce any potential capital gains tax.

Joined:Mon Aug 12, 2019 8:41 am
Location:Sandhurst, Berkshire

Re: Quick query on SPV to purchase investment property

Postby jerome.lane » Tue Nov 12, 2019 11:04 am

A corporate structure might not be the best option. A little tax planning could see the profits as being taxable on your wife who would have an available personal allowance. It could result in a more favourable tax position and your children could still become ultimately entitled to the asset in a controlled way.
Jerome Lane
Tax Adviser
Telephone: 07943 005902

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