One conversation I’m having more frequently with business owners starts something like this:
“We’ve built up a healthy amount of post-tax cash in the business. It’s sitting in the bank, earning very little interest. We’d like to invest it in property, but we’re not sure where to start.“
For many SMEs, this is becoming an increasingly common position.
Rather than leaving surplus profits sitting in a business account, many directors are looking at property as a long-term investment. The key is making sure it’s structured correctly from the outset.
What is an SPV?
An SPV (Special Purpose Vehicle) is a limited company set up for one specific purpose – in this case, owning and managing investment property.
Rather than purchasing an investment property through your main trading business, many business owners establish a separate company whose sole purpose is property investment.
Typically, the shareholders and directors mirror those of the trading company, although the most appropriate structure will depend on your own circumstances and should always be discussed with your accountant.
Keeping the property investment separate from the trading business can provide clarity, simplify management and is the structure many lenders expect when arranging limited company buy-to-let finance.
Using an Intercompany Loan
Once the SPV has been established, your accountant may advise that your trading company lends some of its post-tax retained profits to the new SPV through an intercompany loan.
This allows the SPV to use those funds towards the property purchase, such as the deposit and associated costs.
The SPV can then obtain the appropriate mortgage funding to complete the purchase.
Exactly how this is structured is something your accountant will advise on, but from a lending perspective, it’s a route I see used regularly by established businesses looking to diversify into property investment.
Where I Can Help
The first conversation I’d always recommend isn’t actually about the property.
It’s about understanding how much surplus cash is available within the business after tax.
Once we know roughly how much capital is available, we can start building a picture of what’s achievable.
That helps answer questions such as:
✓ How much could the SPV contribute as a deposit?
✓ What level of borrowing may be available?
✓ Would a Buy to Let, Commercial or Semi-Commercial mortgage be the most appropriate?
✓ What sort of property budget does that create?
Having those answers early means you’re searching for the right opportunities rather than guessing what might be affordable.
A Joined-Up Approach
These projects work best when your accountant, solicitor and mortgage adviser work together.
Your accountant can advise on the most appropriate company structure and tax implications.
Your solicitor can deal with the legal aspects.
My role is to source the most suitable funding for the property purchase and guide you through the mortgage process.
Thinking About Investing Company Cash?
If your business has built up post-tax profits and you’re considering investing in property, it’s worth having an initial conversation before you start viewing properties.
A simple discussion about the funds available within the business can often provide a much clearer picture of what could be possible and help you move forward with confidence.
Disclaimer
This article is for general information only and should not be regarded as tax, legal or financial advice. Company structures, intercompany loans and tax treatment depend on your individual circumstances and should always be discussed with your accountant and solicitor. Mortgage lending is subject to status, affordability and lender criteria.
