Property Incorporation: Moving to a Limited Company (SPV) Structure

A Special Purpose Vehicle (SPV) is a limited company set up specifically to hold rental property. The most common SIC code is 68209. The economic case for incorporation is straightforward: corporation tax (currently 19%-25%) allows full deduction of mortgage interest, sidestepping Section 24, and retained profits accumulate without further personal tax until extracted.

The traps are equally well known. Incorporating an existing portfolio means a transfer of property, which triggers Stamp Duty Land Tax and Capital Gains Tax unless specific reliefs apply. Mortgage refinancing is usually required because most BTL lenders will not transfer a personal mortgage onto a company name. Annual compliance costs roughly double. The decision deserves modelling, not a back-of-envelope.

When the maths actually favour an SPV

A clean five-test screen:

1. 1Higher-rate or additional-rate income tax band, today and forecast.
2. 2Mortgage interest above 40% of net rental profit before tax.
3. 3Holding period of at least 5-10 more years.
4. 4Profits retained or reinvested into further property, not stripped immediately for lifestyle.
5. 5Active management (15+ hours per week) qualifying for Section 162 Incorporation Relief.

Where four or five tests pass, incorporation usually pays for itself within 3-5 years. Where two or fewer pass, the friction usually outweighs the benefit.

The SDLT trap on transfer to an SPV

Transferring a personally-held property to your own SPV is, for SDLT purposes, a sale at market value. The 3% additional-dwelling surcharge applies because the SPV is acquiring residential property and is not a first-time buyer. Reliefs to consider:

• Multiple Dwellings Relief: where six or more dwellings transfer in a single transaction, non-residential rates can apply (a meaningful saving). The conditions are technical and HMRC scrutiny has tightened post-2024.
• Partnership-to-company incorporation under the Limited Liability Partnership route: SDLT can be avoided where a genuine partnership pre-exists the incorporation.
• Group relief: irrelevant on first incorporation, useful on subsequent restructuring.

For a typical 4-property Harrow portfolio at £450k average, SDLT on transfer to an SPV without relief is in the region of £75,000-£90,000. This is the single biggest cost of incorporation and the reliefs require careful structuring with specialist advice.

Section 162 Incorporation Relief

Section 162 TCGA 1992 defers the CGT charge on transfer of a business to a company in exchange for shares. To qualify:

• The activity transferred must be a "business", not merely investment. The HMRC and case law test focuses on activity level, typically 15-20 hours per week of active management.
• All assets used in the business (other than cash) must transfer to the company.
• Consideration must be wholly or partly in shares of the company.
• The base cost of the original property carries forward into the share base cost; CGT becomes payable when shares are eventually sold or extracted.

Section 162 is the difference between deferring £30,000-£200,000+ of CGT or paying it on day one. Documentation matters: time logs, management diaries, evidence of active oversight (not just outsourcing to an agent). HMRC has rejected Section 162 claims where activity was minimal.

Director Loan Account funding

Where personal cash funds the SPV, the Director Loan Account (DLA) is the cleanest mechanism. Mechanics:

• Director lends personal cash to the company, recorded as a credit balance on the DLA.
• Interest can be charged on the loan (taxable on the director, deductible for the company) or omitted (HMRC accepts a simple loan).
• Repayments of the loan back to the director are tax-free returns of capital, not dividends.
• A DLA balance can be substantial in early years and unwinds over time as rental profits build company reserves.

Family Investment Companies vs standard SPV

A Family Investment Company (FIC) is an SPV with a multi-share-class structure designed for inter-generational wealth transfer. Key features:

• Different share classes for parents, children and trusts, each with different rights to dividends, capital and votes.
• Founders retain control through voting shares while economic interest moves to children's growth shares.
• Capital growth attributable to children's shares falls outside the parents' estate for IHT purposes after 7 years.
• Set-up cost £3,000-£8,000 with ongoing legal review of the share rights.

A FIC is overkill for a 2-property portfolio. For portfolios above £2-3m where IHT is the dominant concern, the FIC structure pays back its complexity. Discretionary trusts via the FIC layer add another tier of flexibility but trigger their own 10-yearly anniversary IHT charges and a 6% periodic charge.

Tax-efficient profit extraction

For an active director-shareholder of a property SPV, the standard 2026 extraction stack is:

1. 1Salary up to the secondary threshold (no employer NI) and personal allowance (no income tax).
2. 2Pension contributions (employer route, deductible for the company, free of NI).
3. 3Repayment of credit DLA balance (tax-free return of capital).
4. 4Dividends from retained profits, taxed at 8.75%/33.75%/39.35% depending on the shareholder's marginal band.

Married couples can split shares 50/50 (or via different share classes) to use both partners' dividend allowances and basic-rate bands, materially reducing the effective extraction tax rate.

The compliance cost of running an SPV

A working SPV carries permanent compliance overheads:

Compare to £400-£900 for the same portfolio held personally and the SPV's £1,000-£1,800 annual compliance premium becomes a real input into the cost-benefit model.