Challenges to extracting profits from Property Special Purpose Vehicles (SPV)
A Special Purpose Vehicle (SPV) is a company set up to capture value from property transactions and developments. Property developers and investors typically use SPVs to contain and manage risks associated with their developments, each of which will have different investor profiles.
A typical route for extracting profit at the end of an SPV’s life has been to enter into a Members Voluntary Liquidation (MVL) where profits in the SPV are distributed in accordance with shareholdings. Depending upon the personal circumstances of the shareholder, they may enjoy Entrepreneurs Relief (10%) tax treatment. However, a recent piece of legislation – the Finance Act 2016 – changed the way distributions in an MVL may be treated, meaning an increase in exit rate tax from 10% (where Entrepreneurs Relief applies) to 38.1% from 6 April 2016. This change to treatment of tax for shareholders in an MVL generated a rush of liquidations in 2016, resulting in a backlog at HMRC for tax clearance – which can now take up to 18 months.
These new rules could have a significant impact on many day-to-day property transactions and we strongly recommend anyone using or planning to use SPVs should be reassessing their ownership structures and, where appropriate, seeking expert advice.
Enness partners with specialist to assist clients in releasing profits from SPVs
In addition to the elongated process associated with MVL, there are several additional potential problem areas to consider including but not limited to; cash being withheld by liquidators, warranties and indemnities imposed and lost time to the management of an 18-month process. Furthermore, an MVL can be reversed for a period of up to six years, resulting in further risks for shareholders.
To assist our clients with their requirements in this area, we have partnered with a specialist acquirer of property SPVs in order to extract profit and avoid the cost and risk associated with ongoing ownership. This specialist can release cash from your property SPV in 30 days, taking all risks on your behalf, delivering fast payment to shareholders, no ongoing liabilities, certainty in terms of outcome and an entirely private transaction.
This service is backed by a bespoke £800million insurance policy from the world’s largest insurance company, providing a guarantee for the acquisition of your SPV.