An increasing number of landlords are looking for new and different tax-efficient ways to invest in and manage buy to let property. While SPV limited company structures have been around for some years, layered company ownership is now coming to the fore. What are they, and why do landlords use them to invest in buy to let property?
What is layered company ownership?
Typically, a layered structure is where the borrowing SPV company (Company B, which owns or is purchasing the buy to let property) is owned 100% by another company (Company A). This company is owned 100% by you, the landlord. Essentially, this makes the SPV a subsidiary of another company.
Person > Company A > SPV (Company B)
When are layered structures usually used?
Usually, layered company structures are used in property investment when an individual runs a business through Company A (possibly a Trading Company) and wants to invest some of the built-up funds by purchasing buy to let property.
By setting up a subsidiary SPV Limited Company owned by Company A, the individual can pass the cash reserves from Company A to the SPV through a director’s loan. This can often be a tax-efficient way to move cash funds. Furthermore, there tends to be more choice and competition on buy to let mortgage rates for SPV Limited Companies than Trading Companies.
What do buy to let lenders think about layered structure ownership?
Buy to let lenders traditionally favour companies owned by people, i.e. a flat structure. For some of them, even this investment structure is still relatively new! However, as the type of layered structure described above becomes used more widely, lenders are thankfully broadening their criteria to include this layered ownership type.
What do buy to let lenders usually look for?
Lenders who accept layered ownership generally look for the directors to be the same for each of the companies within the structure.
How much choice is there in the market?
We currently have ten lenders that can accept layered ownership. Rates vary from lender to lender, but there are lenders at the lower end of the pricing scale, meaning that this isn’t necessarily a more expensive option. At the time of writing, rates start from 4.04% for a 5-year fix.
Is a layered company for me?
If you are the owner of a limited company and are looking at whether a layered company structure may be the best buy to let investment option for you, you must first seek professional tax advice. We can provide mortgage illustrations for comparison; however, we cannot offer tax advice.
What’s next?
If you have any buy to let mortgage-related questions to do with layered company investment structures, do give us a call on 0345 345 6788 or submit an enquiry.
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