How to Set Up an SPV for Buy-to-Let: A Step-by-Step Guide

Setting up a company to buy property is easy to do and surprisingly easy to get wrong. The registration itself takes about an hour online, but the choices you make in that hour, such as the SIC code, who owns the shares and how the deposit gets into the company, decide which lenders will look at you later. Most of the problems we see with SPV mortgages started on the day the company was formed.

At Drummonds Finance Group we arrange mortgages for landlords buying through limited companies every week, and we often speak to clients before the company exists. This guide walks through setting up an SPV in the order we would do it, so the company is ready for a lender from day one.

What an SPV is and why lenders prefer one

An SPV, or special purpose vehicle, is a limited company set up only to buy, let and manage property. It doesn't trade in anything else, so its accounts are simple and the only income is rent. That simplicity is exactly why lenders like it. A lender can look at an SPV and see clearly what the company owns, what it owes and who is behind it.

A trading company that also runs a business can still borrow on a buy-to-let, but far fewer lenders will consider it and those that do will pick through the trading accounts. For most landlords a dedicated SPV is the cleaner route, and it is what most limited company buy-to-let mortgages are designed around.

Step one: check a company is right for you

Before you register anything, speak to an accountant. Buying through a company is usually more tax efficient for higher-rate taxpayers who plan to hold property long term and reinvest the profits, but it is not right for everyone. Basic-rate taxpayers, landlords who need to draw all the income personally and anyone planning to sell within a few years can find the extra running costs outweigh the savings.

We have compared the two routes in detail in limited company vs personal name buy-to-let mortgages. If you already own rental property in your own name, bear in mind that moving it into a new company is treated as a sale, so the SPV is usually used for new purchases rather than existing ones.

Step two: choose the right SIC code

When you register a company you have to describe what it does using a SIC code. Lenders check this, and the wrong code can rule you out of most of the market before anyone looks at the property.

The codes lenders expect to see are 68100 (buying and selling of own real estate), 68209 (other letting and operating of own or leased real estate), 68320 (management of real estate on a fee or contract basis) and 68201 (renting and operating of Housing Association real estate). Most landlords choose 68209, sometimes alongside 68100. Avoid adding unrelated codes for other business ideas, because a second activity turns the company into a trading company in a lender's eyes. You can check the full list on Companies House.

Step three: decide who will be a director and a shareholder

This is the decision that matters most for the mortgage. Lenders want every director, and usually every shareholder with a significant stake, to give a personal guarantee and pass a credit check. If one of the people you plan to include has recent missed payments or a default, it can affect the whole application.

Keep the structure simple where you can. One or two directors who also own the shares is the most widely accepted setup. Some lenders cap the number of directors or shareholders, often at four, and many are wary of complicated arrangements such as another company owning the shares, trusts or overseas shareholders. If you are planning to involve family members, children or a holding company, talk to us before you register so we can check it against the lenders you are likely to use.

Step four: register the company

You can register a company directly with Companies House online, or ask your accountant or a formation agent to do it. You will need a company name, a registered office address, the details of the directors and shareholders, the SIC code and the share structure. Directors now have to verify their identity with Companies House as part of the process.

Ordinary shares with a small nominal value are standard. Unusual share classes are best left to your accountant, as some lenders ask questions about them.

Step five: open a business bank account

The rent should be paid into the company, and the mortgage paid from it, so the company needs its own bank account. Some lenders want to see that the account is open before they will offer, and it makes the deposit trail much easier to follow. Keep the account for property only, and avoid paying personal bills from it.

Step six: get the deposit into the company

Most lenders ask for a deposit of 25% of the purchase price for a company purchase, and a small number lend up to 80% loan to value. The most common way to fund the deposit is a director's loan. You lend your own savings to the company, it is recorded as money the company owes you, and you can draw it back later without paying tax on it.

Lenders are comfortable with director's loans, but they will want to trace where the money came from, just as they would with any deposit. Funds from family can sometimes be used too, either as a loan to the company or as a gifted deposit, but not every lender accepts gifts into a company, so check before the money moves.

Step seven: line up the mortgage before you make an offer

Company buy-to-let lending is based on the rent the property will earn rather than your salary. Most lenders need the rent to cover 125% of the mortgage interest at a set stress rate, which is often more generous than the test for higher-rate taxpayers buying personally. We have explained how this works in rental stress tests explained, and our buy-to-let calculator gives a quick guide.

It's worth getting an agreement in principle once the company is registered, even before you have found a property. It confirms the structure works for the lender and tells you what you can offer. If this is your first rental property, read our guide to buying your first buy-to-let with no experience, as some lenders apply extra rules for first-time landlords.

Step eight: keep the company in good order

Once the company owns property, it has ongoing responsibilities. It needs to register for corporation tax, file annual accounts and a confirmation statement with Companies House, and keep records of the director's loan. Lenders will look at this paperwork when you remortgage or buy again, so a tidy company makes every future application easier.

As the portfolio grows, you may be treated as a portfolio landlord once you have four or more mortgaged buy-to-lets, which brings a different assessment. Our portfolio landlord mortgage broker page explains what changes.

Mistakes we see most often

The most common problem is a SIC code that doesn't fit, usually because the company was set up for something else first. The second is a shareholder who wasn't expecting to give a personal guarantee or who has a credit issue nobody mentioned. The third is a deposit that moved through several accounts with no clear paper trail.

We also see landlords set up an SPV to buy an HMO or a block of flats without realising those lenders have their own criteria on experience and licensing. None of these are hard to fix if they are caught before you apply. They are much harder once a purchase is under way.

Frequently asked questions

How long does it take to set up an SPV?

Registering the company online usually takes a day or two once identity checks are done. Opening a business bank account can take longer, so start that straight away.

Can I use an existing company for buy-to-let?

You can, but if it trades in anything other than property, far fewer lenders will consider it. A new SPV is usually the simpler option.

Do I need an accountant to set up an SPV?

You don't need one to register the company, but you should take tax advice before deciding to buy through a company, and you will need an accountant to prepare the annual accounts.

Can a new SPV with no accounts get a mortgage?

Yes. Most limited company buy-to-let lenders accept a newly formed SPV and assess the directors' experience and credit instead of the company's trading history.

Can my spouse be a shareholder?

Yes, and many couples own an SPV jointly. Lenders will usually ask both of you to give personal guarantees.

Where we come in

Setting up an SPV properly is about thinking ahead to the mortgage, and that is where we help. We can check your planned structure before you register, recommend the lenders that fit it and arrange the mortgage once you have found the property.

If you are thinking of buying through a limited company, get in touch or call 0330 1330034 and we'll talk it through before you register anything.

Important information

Your home may be repossessed if you do not keep up repayments on your mortgage.

Most buy-to-let mortgages are not regulated by the Financial Conduct Authority.

The Financial Conduct Authority does not regulate tax advice.

Drummonds Finance Group is a trading style of Liam Drummond, who is an Appointed Representative of Stonebridge Mortgage Solutions Ltd, which is authorised and regulated by the Financial Conduct Authority. FCA number: 945428.