What Are Special Purpose Vehicles?

A Special Purpose Vehicle (SPV) is a completely independent subsidiary (i.e. a limited company or partnership) created by a parent company, enabling it to detach itself from financial risk. SPVs are often set up for a specific project or a limited purpose, especially in sectors such as finance and commercial property. This guide will help you to understand the main purposes of an SPV, the benefits they offer, the risks, and how to set up an SPV in the United Kingdom. 

What is a Special Purpose Vehicle (SPV)?

A Special Purpose Vehicle (SPV) is a separate legal entity created for the limited purpose of isolating or securitising the assets of a parent company. SPV are legally separate from the parent company when it comes to accounts and tax, lowering the financial risk for the parent company. SPVs are most often used when purchasing businesses or assets and financing large projects. 

SPVs operate entirely independently and can have their own operation structure, financials, assets and liabilities. SPVs are most often established by parent companies because they have no pre-existing debts or obligations and debts.

Why are SPVs used?

By establishing an SPV, you can be assured that due to its independent legal status, it will continue to operate even if the parent company encounters financial problems. And vice versa, the parent company will not be affected by the financial performance of the SPV. As such, they provide an excellent way for company owners to mitigate risk when running projects or undertaking important transactions.

SPVs are used for a wide variety of project types, including:

• Property development – Property investors and landlords may establish an SPV to purchase, develop, and let properties. They do this to isolate the risks of a particular property project from the liabilities of the parent company. 
• Securitising loans  – SPVs are often used to separate loans from other obligations.
• Venture capital – SPVs are often set up by venture capital managers to manage the transfer of complex assets. They also enable investors to pool resources to raise additional capital, which can then be used to invest in startups and other investment assets and
• Raising capital – SPVs can be used to raise much-needed capital/finance through bond issues or the securitisation of rental income. 

What are the advantages of SPVs?

Some of the key advantages of SPVs are as follows:

Advantage	Why?
Financial protection for parent companies	The fact that an SPV is completely isolated legally and financially means that the parent company is protected if the SPV encounters problems (and vice versa).
Highly tax efficient	SPVs offer a number of tax efficiency benefits (e.g. 100% mortgage interest tax relief enabling the full deduction of mortgage interest from taxable profit).
Project financing	SPVs often help to attract financing and investment in specific projects that are separated from the parent company.

What are the disadvantages of SPVs?

The main disadvantages of SPVs are as follows:

Disadvantage	Why?
Cost	Establishing and running an SPV can be costly in terms of accounting, administrative, legal and other professional fees.
Reputational risk	If an SPV fails, this may cause reputational harm to the parent company.
Possible lack of transparency	In some cases, investors may not have a full picture of the assets held by the SPV, the risks associated with them, and their performance.

Registering an SPV with Companies House

SPVs are formed the same way as other limited companies, by registration through Companies House. There are two main ways you can register your new SPV: by completing the online application form on the Companies House website or through a company formation agent such as Uniwide Formations. We offer a range of company formation packages which are tailored to different needs and designed to make registering your SPV as quick and easy as possible. 

Once your SPV is registered with Companies House, we offer a range of highly affordable business services, such as filing company documents and a company address service. Our aim is to help you ensure your SPV is compliant with company law at all times. 

What information do I need to provide to register an SPV in the UK?

When completing the company registration process, you will need to provide the following:

• SPV company name – the name you provide must not be the same or too similar to that of an existing registered company and cannot be misleading.
• Standard Industry Classification (SIC) code/s 
• Name of at least one director and one shareholder 
• The company’s registered address and director details 
• Memorandum of Association (MOA) and Articles of Association (AOA) that define the company’s business, and
• Details of the shareholding in the SPV.

SPV legal duties and obligations

Director’s duties and obligations

While SPVs enable parent companies to mitigate financial risk and liabilities, they must still adhere to the law and any specific obligations that apply. Directors of limited Company SPVs must ensure that the company maintains proper records, files annual financial statements, and holds annual general meetings (if applicable). 

Filing requirements

Like all UK companies, limited company SPVs are legally required to prepare and file annual financial statements with Companies House each year. It is essential to ensure they are properly prepared by a qualified accountant to comply with the required accounting standards and are submitted by the deadline. 

SPVs are also required to maintain statutory registers, including registers of directors, shareholders, and charges. These must be kept up-to-date and available for inspection at any time by regulatory bodies or stakeholders, such as investors or auditors.

SPVs must disclose certain information in their filings to Companies House, including the identity of directors and the details of significant transactions.

Taxation requirements

As with a normal limited company, SPVs must register for and pay corporation tax on their profits. Once registered, it is imperative that the SPV complies with its tax obligations, including paying tax on profits, managing and paying VAT, and reporting income and expenditures. If an SPV has a taxable turnover that exceeds the VAT registration threshold of £90,000, it will need to register for VAT. 

Asset protection

Certain assets held by the SPV may impose additional obligations such as taking out and maintaining insurance coverage, making timely payments, or reporting certain events. It is imperative to ensure that these asset protection obligations are understood and adhered to.

Adhering to environmental, health, planning and data regulations

SPVs must adhere to the specific laws and regulations for the type of activities they are involved in. If an SPV is involved in property or infrastructure development projects, it must comply with local planning regulations, environmental laws, and any specific permits or planning approvals issued. It must also comply with UK health and safety regulations under the Health and Safety at Work Act 1974, which imposes a legal duty to ensure safe working practices through effective risk management practices at all times. 

If your SPV handles personal data (e.g. for customer or employee records), it must comply with the Data Protection Act 2018 and the General Data Protection Regulation (GDPR). Failure to do so can lead to a substantial fine for the SPV. The data protection requirements mean that you must have secure data handling practices and obtain any necessary consent.

Key considerations for SPV investors

Any investor considering placing funds into an SPV should carry out thorough due diligence before doing so. We recommend taking the time necessary to look carefully at the financial performance of SPV and the parent company. Review all of the assets held by the SPV and the ability to pay obligations independently from the parent company. 

If you are purchasing property held by an SPV, consider whether you want to acquire the SPV outright rather than the property itself. This can have substantial benefits when it comes to SDLT. This is because SDLT is charged on the purchase of property in the UK but not on the shares in a company. If you plan to purchase the SPV rather than just the asset, it is especially important to engage legal, tax, and financial professionals to assess the current state of the company. This will come with additional costs, but these will ensure that your investment is fully understood from the outset.

Final words

We hope you have found this guide to Special Purpose Vehicles (SPVs) useful and instructive. If you are interested in setting up an SPV, it is vital to seek the advice of professionals in the fields of tax, law, finance, and company law. They are best placed to advise on the recommended structure for your SPV and how you can maximise the benefits that can be realised. If you are considering investing in an SPV, you must take the time to complete the necessary due diligence before doing so. Understanding the asset profile and financial performance of the SPV and the holding company will empower you when making important business decisions. For assistance in setting up your SPV in the UK, please contact a member of our friendly, experienced company formation team or choose one of our company formation packages.