What is an SPV (Special Purpose Vehicle)?
A Special Purpose Vehicle (SPV) is a limited company set up for a specific project or transaction, typically used in property investment or development.
In most cases, an SPV is created solely to:
- Purchase a property or land
- Carry out a development
- Hold or sell that specific asset
It does not carry out other trading activities, which helps keep the structure clean and low risk.
Why use an SPV for property?
Using an SPV is very common in property development and investment for several key reasons.
1. Risk protection
An SPV isolates the property from other business activities.
This means:
- Any risks or liabilities are contained within that company
- Other businesses or assets you own are protected
2. Simpler structure
Lenders, investors and accountants generally prefer SPVs because:
- The company has no trading history or unrelated transactions
- Accounts are easier to understand
- The project is clearly identifiable
3. Tax considerations
Using a separate company can make tax planning clearer.
However, it is important to note:
- There are no automatic tax advantages just for using an SPV
- Tax treatment depends on what the company does (investment vs development vs trading)
Because of this, separating projects into different companies is often more practical from a tax and compliance perspective.
SPVs and property development
SPVs are particularly useful when developing property.
This includes:
- New residential builds
- Conversions (e.g. office to residential)
- Commercial developments
VAT on property development
VAT treatment in property development is complex and varies depending on the project.
For example:
- New residential builds are often zero-rated
- Conversions may qualify for reduced rate VAT (5%)
- Commercial property is usually standard-rated (20%)
A common misconception is that all development is zero-rated — this is not correct.
In addition:
- Certain costs (e.g. kitchen appliances, some equipment hire) may not be recoverable
- VAT recovery depends on the nature of the project and how the property is used
Using an SPV can help simplify VAT accounting and project tracking, but professional advice is essential.
Selling the property vs selling the company
One major advantage of using an SPV is flexibility on exit.
You can either:
- Sell the property, or
- Sell the shares in the SPV company
This can have very different tax outcomes, particularly for:
- Capital Gains Tax
- Corporation Tax
- Stamp Duty Land Tax (for the buyer)
This is a key planning area and should always be reviewed before starting a project.
Funding and lender requirements
Most banks and property lenders require developments to be held in an SPV.
This allows them to:
- Take security over the property, and
- Take security over the company itself
This is standard practice for development finance and investment lending.
Cash flow and development planning
Property development is highly cashflow-driven.
Before starting a project, it is essential to understand:
- Intests and timing
- rest costs over time
- Build co
- Profit margins
- Risks of delays or overruns
A proper cash flow forecast helps you:
- Assess viability
- Secure funding
- Avoid unexpected losses
Common mistakes to avoid
- Assuming SPVs automatically provide tax savings
- Not understanding VAT rules on developments
- Mixing different projects in one company
- Failing to plan the exit strategy (sale vs shares)
- Not preparing a proper development cash flow
Final thoughts
An SPV is a simple but powerful structure for property investment and development.
It provides:
- Risk protection
- Clarity for lenders and investors
- Flexibility on exit
However, the real benefits come from proper planning, particularly around VAT, tax and funding.
