Property Developers and the SPV Company

An SPV (special purpose vehicle) company is a company set up for a specific purpose. Experienced property developers will often set up a new SPV company for each property they develop. The administrative time and costs involved in setting up and running a new company for each development are often outweighed by the advantages of the SPV structure, some of which we discuss below.


Prior to the invention of the limited company, businesses were run as sole traders or partnerships. In either structure, the individuals running the business can be found personally responsible for the liabilities of the business. The shareholders and directors of limited companies are generally not liable for the company’s liabilities.

You may well ask why developers need to set up an SPV company for each property they develop? Why don’t they simply set up one company and carry out all of their developments through the one company? A limited company has its own legal personality, distinct from its shareholders and directors and, importantly, also distinct from other companies in its group (including parent companies). By setting up an SPV company for each new development, the developer can ringfence their liability for a specific development into the SPV company, protecting the trading company’s assets.

In the graphic above, the Developer has set up a trading company and then three separate SPV companies, one for each development they are carrying out. If circumstances give rise to a liability in Development A, for example, if someone was injured on the building site of Development A, the injured party would potentially have a claim against SPV A. However, because of limited liability, the injured party would likely be prevented from claiming against the Trading Company and the Developers personally. This means that the assets held by the Trading Company (which includes SPV B and SPV C, and the properties held by those SPV’s) are protected against the injured parties claim. If the Developer had not set up the three SPV companies and rather was carrying out all three developments through the Trading Company, the injured party would claim against the Trading Company and, if successful in their claim, could potentially enforce the claim against the assets of the Trading Company (which would include all three developments, not just Development A).

Joint Venture

As limited companies are made up of shares, it is easy to divide those shares amongst multiple parties in order to share the profits generated by the company. By setting up an SPV company for each new development, a developer can easily set up joint ventures with third parties in respect of specific developments. Using the graphic above, the Developer could offer a third-party shares in SPV B and carry out Development B as a joint venture between the third party and the Trading Company. The third party would have no interest in Development A or Development C.


In order to fund a development, a developer may offer shares in an SPV to a third-party investor (as discussed under Joint Venture above) or they may seek to borrow funds from a lender. If borrowing from a lender, that lender will almost certainly require security for their loan. When lending to limited companies, the most common form of security is a debenture, which is a charge (similar to a mortgage) over all of the company’s assets. Once a company has granted a debenture in favour of a lender, that company may struggle to obtain further lending as the existing lender will need to consent to any further security over the company. Furthermore, the initial lender will almost certainly require that a subsequent lender enters into a deed of priority ranking the initial lender’s debt above the subsequent lender’s debt.

The SPV structure guards against this. Using the graphic above, SPV B could take a bank loan from Lender B and grant Lender B a debenture over SPV B. Following which, SPV C could take a bank loan from Lender C and would not be prevented by Lender B from taking a debenture over SPV C. Without the SPV structure, the loan to carry out Development B would be made to the Trading Company, Lender B would take a debenture over the Trading Company and the subsequent loan required for Development C may not be easily obtainable as the Trading Company would require consent from Lender B to grant security to Lender C.


By developing though an SPV company, at the end of the development you have the option to either sell the property or the SPV company itself. From a legal perspective, the latter has the advantage of allowing you to be rid of any liabilities that accrued in the SPV company during the development (although a prudent buyer will normally require the settlement of liabilities by adjustment of the purchase price in the purchase contract) and you do not have to arrange for the SPV company to be wound up following the sale. The differing sale methods may also give rise to different tax liabilities. These are discussed under Tax below.


A property development SPV will often complete its development activity and then sell the finished property either to a third party or potentially to a group investment holding company. If all has gone well, the company will at this point realise taxable profits and these will be subject to corporation tax at the prevailing rate. Currently, there is a single corporation tax rate of 19%. From 1 April 2023, there will be a main rate of corporation tax of 25%, with a “small profits rate” of 19% which will apply where profits are below a certain threshold (which will depend on the number of companies under common control).

Where a property is sold at a profit, post-tax profits remaining within the SPV can be paid to the shareholder(s) by way of dividends. UK companies do not withhold tax on dividends, and UK corporate shareholders are not be subject to corporation tax on dividends received from other UK companies, and so returning profits in this way will generally be a simple and tax-efficient way to proceed.

The SPV can in due course be liquidated, and the shareholder(s) will at this point be treated for tax purposes in the same way as if they had sold the shares (for which see below), with any liquidation distributions being treated as disposal proceeds in their hands.

Where an SPV itself – rather than the property – is sold, this will not itself give rise to corporation tax within SPV. However, the purchaser is likely to anticipate the corporation tax liability that would arise on a future disposal of the property (or on a transfer of the property to an investment asset) and to seek to reduce the purchase price accordingly.

A corporate shareholder that disposes of shares in a company – either on a third-party sale or on a liquidation – will by default be subject to corporation tax on any gain made on the shares. The substantial shareholding exemption (SSE), however, may well apply on the disposal of shares in a property development SPV, and where this is the case any gain will be exempt (and loss will not be allowable – for corporation tax purposes).

In broad outline terms, the SSE applies to disposals of shares where the investing company has held 10% of the ordinary shares in the company whose shares are being sold for a continuous period of at least 12 months during the six years prior to disposal, and where the company whose shares are being sold has been a trading company from the beginning of the 12 month period until the date of disposal (although there is some relaxation for companies which were trading but which have ceased to trade by the time of the disposal). The various conditions will often be met on the disposal of a property development SPV, but will need to be checked in detail.

Bearing in mind all of the above, it will often be possible for profits made through a property development SPV to be returned to corporate shareholders without any tax leakage. Those profits can then be used in other projects within the group, or returned to the beneficial owners (although at this point further tax implications would be expected to arise).

Please note, Morr & Co LLP does not offer tax advice. The Tax section of this article has been contributed by Ian Matthews, Partner at Moore Kingston Smith LLP. Ian Matthews is contactable on [email protected] or 01737 779000.

If you would like to discuss the issues raised in this article please contact a member of our Corporate Team who will be happy to help.


Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.

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