When your property business starts taking on multiple projects or outside investors, Special Purpose Vehicles (SPVs) often become the go-to solution. An SPV isn’t a different legal entity, but rather a limited company created for a single development project – an approach widely adopted by property developers and increasingly expected by lenders. By putting each project into its own company, you ring-fence any risks and liabilities of that project, preventing issues on one site from spilling over to others.

Typical Structure

The most common arrangement is a developer’s ‘holding’ company sitting at the top of a group structure, with individual SPVs for each project sitting beneath it as subsidiaries. This allows:

• Central control and oversight through the holding company.
• Intercompany loans from the holding company to fund the development costs in each SPV.
• Potential for group relief — trading losses in one group company can be surrendered to offset profits in another, subject to certain conditions.
• Post tax profits of the SPV to be paid up to the holding company tax free (subject to certain conditions). This money can then be extracted by the shareholders, or re-invested in other projects.

Commercial Considerations

• Each project is legally separate, so if a specific development encounters significant cost overruns, defects claims or insolvency, losses are contained within that SPV and won’t automatically spread to other projects or the developer’s personal wealth.
• Lenders often prefer a clean company with a single development asset as security, rather than lending into a single company running multiple projects.
• Different investors or JV partners can be brought into individual SPVs at the project level, without disturbing the broader group structure.
• Certain lender and local authority conditions require a separate entity to be the named developer on a scheme.
• Each SPV is a separate taxable entity, with its own Corporation Tax return, accounts and Companies House obligations, which increases the administrative burden.

Tax Considerations

• The £25m allowance for Residential Property Development Tax (RPDT) is assessed on the group as a whole, rather than each individual entity.
• Depending on the number of companies in the group structure, the associated companies rules can reduce the threshold for the main corporation tax rate where there are multiple connected companies. It can also bring the group in to the ‘Quarterly instalment Payments’ (QIPs) regime, where corporation tax is paid in advance.
• A group structure can facilitate VAT grouping, allowing transactions between group members to be disregarded for VAT purposes and simplifying cash flow. This would need to be reviewed on a case by case basis to ensure that it is beneficial for the position of the group as a whole being aware that VAT grouping creates joint and several liability between the entities for VAT due.

In addition to the pros and cons mentioned above for corporate structures more generally, the following points should be noted:

Pros

• Isolates project risk from other activities and assets
• Preferred structure for development finance lenders
• Flexible investor/JV arrangements at project level
• Group relief can offset losses across the structure
• VAT grouping can simplify cash management.

Cons

• Multiple companies = multiple sets of accounts and returns, which increases the compliance cost.
• Associated companies rules may increase Corporation Tax rates, or result in QIPs
• RPDT is assessed on the group rather than on each individual entity
• More complex to unwind if the structure becomes unwieldy

In summary, by isolating each development in its own company, you protect your wider business from project-specific risks and create tidy financial reporting for each venture. This approach allows you to invite investors or joint venture partners into individual deals without implications for the wider business. If you see a growing pipeline of projects, SPVs are ideal, but you’ll want to plan your group structure thoughtfully, so it stays efficient and manageable as you expand.

If you’re gearing up for multiple development projects or considering a group structure with SPVs, consider talking to a property tax adviser. Professional guidance can help you design a smart SPV strategy that balances growth, risk management, and tax efficiency for your development business.