Am I right to think SPV's are tax inefficient?

If you earn over £35 000 you have to pay additional income tax on dividends.

Even so, if you own part of a buy-to-let directly, you simply pay your marginal rate of income tax on the rent (after deductions). If you own it through shares in an SPV, you first pay corporation tax at 20%, then you pay at least 10% in dividend witholding tax on the remainder. So irrespective of whether you are a non-tax payer, a standard rate or a higher rate tax payer, you are worse of holding a buy-to-let through a ltd co.

I can't find a definitive answer on the tax to be paid when the house is sold and the SPV wound up. It seems to depend on whether you pay a liquidator a few thousand pounds to wind it up, in which case the spv doesn't pay tax on the capital gain, although you might if you exceed the annual limit. Alternatively you pay out a one-off dividend and first the spv gets taxed on the capital gain, and potentially so do you. So again, however you wind-up the spv, and whatever you're marginal tax rate, you are considerably better off holding your share directly, rather than shares in a spv.

Profits holding individually could push you into higher rate tax band at 40%+

Company pays 20% CT. Then COULD distribute dividends to each share holder below upper rate tax band with no further IT to pay.

Dividend payments can be timed and the amounts altered to suit the shareholders individual taxation. Excess funds can be retained in the business and paid at a time when better suits shareholders

SPV can have as many share holders as like. So say 10 or so people could benefit, including family members such as spouse and adult children.

Additionally, several costs can be taken out to reduce profits PRIOR to taxation of CT. eg loan interest, accountancy, salaries, management costs, maintenance, etc etc. All effectively reducing profits to nil or there abouts so there is little CT to actually pay

When decide to sell, can use Entrepreneurs Relief to wind down SPV and pay 10% on profits, compared to current individual CGT rates

NOTE: Dividend rules are changing April 2016

I appreciate the rules are soon to change, and this will reduce the disadvantages of spv's relative to direct ownership.

What stevio says is true of an spv you control, but few if any of these advantages apply to the spv's run by a platform, at least in as far as the platforms currently use them.

The cgt threshold is indeed 11k. Similarly the dividend threshold will soon be 5k, but these only apply to the 80% that is left after 20% corporation tax has been paid.

I sincerely hope that stevio is wrong that fees wipe out capital gains. It's a somewhat hollow victory, to avoid taxes by not making a capital gain on a buy to let investment. Most of the investments on PP, currently have capital gains well in excess of fees.

I remain convinced that if PP et al structured these investments as market-rate (10%??) loans from us individuals to an spv, with the loans backed by a first charge over the property held, we could have all the benefits of a corporate structure whilst avoiding most or all of the corporation tax.

Reading what you are saying, I think that to create a company that is a crowdfunding property company crossed with a P2P loan company, just to possibly increase profits, would be an accounting and taxation nightmare, and something that would be highly risky. Let's say house prices fall, and after 5 years the property sells at a loss. No CT would be paid, however using your "loan" scenario, the SPV would have lost even more money than that due to the money spent on servicing the 10% loan.


Personally, I could care less how the taxation technicals of running these property P2P companies are done. No doubt they have taxation experts much better qualified than me. I am more interested in the bottom line, which is how much am I going to get back in return. And to date I am more than happy with the returns.