Landlords are increasingly exploring alternative and tax-efficient methods to invest in buy-to-let properties. While SPV (Special Purpose Vehicle) limited company structures have been in existence for a while, the concept of layered company ownership is now gaining prominence. What exactly are these structures, and what motivates landlords to utilise them for investing in buy-to-let properties?
What is a limited company owned by a subsidiary company?
A limited company owned by a subsidiary company is also known as a layered structure in the context of limited companies (LTD) and buy-to-let investments refers to a hierarchical arrangement of companies where one or more subsidiary companies are owned by a parent company. This structure can be used to manage different aspects of a business, including property investment.
Here’s how it might work in a buy-to-let scenario:
This is the main company, possibly involved in various business activities. It may accumulate funds that it wants to invest in buy-to-let properties.
The subsidiary company is a separate company owned by the parent company, specifically set up for the purpose of buying and managing rental properties. It’s often referred to as a Special Purpose Vehicle (SPV) because it has a specific, focused role.
Funds can be transferred from the parent company to the subsidiary through a director’s loan, often in a tax-efficient manner.
Mortgage advantages
Subsidiary companies like SPVs might have access to more favourable mortgage rates for buy-to-let properties compared to regular trading companies.
The layered structure allows for separation between different business activities and can provide legal and financial benefits, such as limiting liability and optimising tax efficiency. However, it can also be more complex to set up and manage, so professional advice is usually recommended to ensure compliance with all relevant laws and regulations.
SPV limited company
Applying for a buy-to-let as a Special
Purpose Vehicle (SPV) limited company takes less than 2 mins
When can I use a layered structure?
When a person runs a business through a company (let’s call it Company A) and wants to use some of the money they’ve made to buy an investment property, they often use a layered company structure.
Again, it involves creating a smaller company (called an SPV Limited Company) that’s owned by Company A. Then, they move money from Company A to this smaller company using the director’s loan. This can be a way to move money that saves on taxes.
Also, when it comes to getting a mortgage to buy property to rent out, SPV Limited Companies may have more options and better rates than regular trading companies.
How do buy-to-let lenders look upon layered structure ownership?
Lenders who give loans for buying property to rent out usually prefer companies that are owned by individuals, meaning a simple, flat structure. For some lenders, this way of investing is still pretty new.
But as the more complex, layered structure previously mentioned becomes increasingly more common, lenders are starting to accept this type of ownership too. At Molo, we require the company to be wholly owned by individuals.
Which attributes do buy-to-let lenders usually look for?
Lenders who are open to the idea of layered ownership in property investment typically have a specific requirement: they want the directors to be the same across all the companies within this complex structure. This consistency in leadership helps them feel more confident in the stability and integrity of the investment.
Is a layered company structure the right option for me?
If you own a limited company and want to use a layered company structure as a potential option for investing in buy-to-let properties, take the first step by seeking professional tax advice.
It’s a complex decision that requires expert guidance to ensure it aligns with your financial goals and tax situation. While Molo can assist by providing mortgage options for your investment, it’s important to note that we are not equipped to offer specific tax advice.
Working with a tax professional will give you the tailored insights you need to make the best decision for your circumstances.
SPV limited company
Applying for a buy-to-let as a Special
Purpose Vehicle (SPV) limited company takes less than 2 mins
