SPV structure requirements, personal guarantees and stress testing
SPV structure: company incorporated solely to hold BTL property; SIC code 68100 (buying/selling own real estate) or SIC 68209 (letting/operating own leased real estate) required by most BTL lenders; trading company SIC codes not accepted; UK-incorporated company; UK registered office; Articles permitting holding/letting/mortgaging property; newly incorporated SPVs accepted (no minimum trading history). Personal guarantee: unlimited personal guarantee from director-shareholders (typically >20-25% stake) required by virtually ALL limited company BTL lenders; guarantor personally liable for full outstanding mortgage debt if company defaults; removes corporate veil for this specific debt; SPV structure provides no additional personal liability protection over personal BTL mortgage for guaranteed debt. Stress test: 125% of mortgage payment at 5.5% WITHOUT higher-rate taxpayer adjustment; no Section 24 restriction inside company; corporation tax at 19-25%; more favourable = lower required rental income for same loan amount than individual BTL equivalent.
- SPV SIC codes: 68100 or 68209 — any other SIC triggers lender rejection; newly incorporated SPVs accepted
- Personal guarantee: virtually universal; unlimited; defeats limited liability for mortgage debt; single most important risk for directors to understand before borrowing in SPV
- Stress test advantage: lower rental income required for same loan amount than individual BTL (no Section 24; corporation tax not 40% income tax); genuine borrowing benefit of SPV alongside tax advantage
- Portfolio landlord SPVs: lender assesses whole portfolio-level ICR — individual SPVs within a portfolio group require more detailed assessment than single-property SPVs
Product availability, lender requirements, rates and incorporation costs
Product availability: expanded significantly since 2017 (Section 24 changes drove adoption of limited company BTL). Lenders include Paragon Bank; Foundation Home Loans; Precise Mortgages; Together; Fleet Mortgages; Aldermore; Shawbrook; The Mortgage Works; specialist Barclays/NatWest teams. Rates typically 0.2-0.5% higher than individual BTL equivalents; HMOs and MUFBs have narrower range and higher rates. Lender requirements: Certificate of Incorporation; M&A; director/shareholder ID and proof of address; personal credit checks (all directors/shareholders >25%); existing properties schedule; rental income projections or tenancy agreement; personal guarantee documentation; solicitor's SPV confirmation (SIC code; structure; Articles). Incorporation transfer costs: CGT at market value on disposal (incorporation relief TCGA 1992 s.162 uncertain for investment portfolios vs trading business); SDLT at market value + 3% surcharge (FA 2003 s.53 connected company transaction); LTT (Wales); LBTT (Scotland) — combined costs typically prohibitive for established personal portfolios; most landlords incorporate prospectively (new properties direct into SPV).
- Use a specialist BTL mortgage broker — limited company BTL lender criteria and product availability change frequently and differ significantly from standard BTL
- Inter-company loans (holding company to SPV): transfer pricing rules (TIOPA 2010 Part 4); arm's length interest rate required; not BTL mortgages; can be secured at HMLR for security
- Incorporation costs: CGT + SDLT combined make retrospective incorporation of existing portfolio usually uneconomic; prospective incorporation (new properties direct into SPV) is the more common approach
- SPV company maintenance: annual Companies House filing (Confirmation Statement + accounts); HMRC corporation tax return; quarterly VAT return (if VAT registered); director payroll (if salary extracted) — overhead vs tax saving must be assessed with an accountant