Funding SPV from existing limited company

Hello,

Long time reader but first time poster so please bear with me...

Over time I have built up some retained profits in a limited company through which I do my day to day work. I would now like to invest these profits in buy to let, and possibly stocks / bonds. The research I've done indicates that mortgage providers prefer to deal with SPV limited companies, i.e. companies set up to hold property and nothing else.
Therefore I am looking at re-structuring my current company to allow me to have a separate company specifically for buy to let. My understanding is that there are a few different options available to me:

1) Set up a new limited company to act as a holding company that would hold a special class of shares in my existing company. Have the holding company itself then invest in BtL.
2) Set up a new limited company specifically for BtL and make it a subsidiary of my existing company.
3) Set up a new limited company to act as a holding company that would hold a special class of shares in my existing company.Additionally set up a new limited company underneath the new holding company to invest in BtL. Therefore there would be three separate companies - a holding company with both my existing company and a property company underneath it.

I understand that I could transfer the retained profits to the new company as dividends between companies, and that there would be no tax to pay on these dividends.

or 4) Set up a new limited company specifically for BtL, keep it completely separate to my existing company and just loan it money from the existing company.

I would like to understand better the pros and cons of each option and the tax efficiencies. I have spoken to different accountants and received conflicting advice - it seems that each accountant is just keen to steer you towards the particular set up they are most familiar with :undecided

Initial advice received is that:
i) Mortgage providers do not like it when the deposit money in the SPV has been loaned to it (as opposed to transferred). Therefore Option 4 is not favourable.
ii) Advantage of Opton 1 is that then the retained profits transferred to the holding company are "ringfenced" and if the existing company were to get into trouble then the property investments would not be affected.
iii) Whereas with Option 2 the property investments would be affected if the existing company were to get into trouble.
iv) Option 3 would be costly to run and admin intensive.

If anyone has any thoughts on this or experience then I would be very grateful.

Thank you, DCG.

Comments

  • Pennywise
    Pennywise Posts: 13,468
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    You'll get even more "personal" opinions on fora than you'll get with asking different accountants. The honest answer is that no one could possibly know without knowing the exact detail/facts of your current and future plans, together with a crystal ball. What does your existing accountant say - after all, they should know your existing set up so are best placed to advise. How about rather than asking random posters and random accountants, why not engage a specialist tax adviser instead who can do a proper/thorough review tailored to your circumstances.

    If you came to ask my advice, I'd suggest setting up a group structure with a holding company and two subsidiaries, one being the trading company, and one being the property letting company. The benefit being that you could transfer cash, assets etc between them without tax costs and that dividends from both could be paid up to the holding company, and then you can choose to take dividends from the holding company to yourself. It also means it's easier/simpler to close down the trading company and/or sell the property company without double tax on the proceeds. I know other accountants would suggest differnetly, but this is my usual advice unless there are sound reasons otherwise. Yes, it sounds the same as your option 3, but costs and admin are pretty trivial compared with the potential benefits and flexibility.
  • _DCG_
    _DCG_ Posts: 5
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    Hi Pennywise,

    Thank you for the reply, I understand that no one could know without knowing all the details. I was posting here in the hope that others might have done a similar re-structuring exercise, and might be able to comment on what they had done and if it was working for them.

    It probably seems a daft question but what is the name of the type of company / service I should look for? It doesn't seem to be something that most accountants can help with... however obviously I have been looking in the wrong place so far.

    Thank you for the insight that Option 3 would be best. What would be the difference in benefits between Option 1 and Option 3? I thought that with Option 1 I would still be able to transfer cash and assets up to the holding company and take my dividends from there, and still close down the trading company without the need to pay double tax? The thought of double tax is a big worry.

    Is the main benefit of Option 3 just that I would be able to close down the property company and still keep the trading company going?

    Many thanks, DCG.
  • I would do similar to what Pennywise says (I am not an expert / accountant) just someone thinking about the same thing. Holding company owns your trading company and SPV company. Dividends transferred to holding company, pay wages / divs from holding company. Only thing is that means you wouldn't get entrepreneurs relief if you sold your trading company.
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