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With interest rates higher than in previous years, property investors are looking for ways to maintain profitability and manage costs.
One area often overlooked is stamp duty, which can be a large expense when purchasing properties. But, is there a way to reduce it while remaining fully compliant with property tax regulations?
Share Purchase Agreement (SPA)
A Share Purchase Agreement (SPA) is a legal contract used when someone buys a company by purchasing its shares, rather than buying the company’s assets directly.
In property terms, this means instead of buying a building outright, you buy the company that already owns it. This can save on stamp duty and make the transaction quicker, as ownership of the property stays with the company – you’re just changing who owns the company itself.
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An Alternative Approach
Why buy the property direct, when you can buy the company that already owns it!
For residential, the standard stamp duty rates are: below. These rates include the 5% surcharge for buy to let properties:
| Up to £125,000 | 5% |
| £125,001 – £250,000 | 7% |
| £250,001 – £925,000 | 10% |
| £925,001 – £1.5 million | 15% |
| Over £1.5 million | 17% |
However, purchasing the shares of a company attracts a flat 0.5% stamp duty, regardless of the property value.
For example, if you already own your home and want to buy a £750,000 property to rent out, buying it directly could cost £65,000 in stamp duty.
Buying the company that owns the property instead would cost just £3,750 – a saving of £61,250!
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Mortgages for Share Purchases
It is possible to get a mortgage to buy a property-owning company. However, there is only a handful of lenders who are currently able to lend on a share purchase agreement and due to the higher complexity of the deal, there is a slight premium to pay on the interest rate – you aren’t currently able to use the lenders with the market leading rates to buy a property company as this is outside of their lending criteria.
So who are these lenders?
This is where specialist advice becomes crucial. We at Advocate Finance have access to all lenders currently offering mortgages for share purchases and can explain the differences in pricing, lending criteria, and pros and cons of each option.
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Key Considerations When Buying a Company through an SPA
Rather than purchasing the property into your personal name or into a company you already own, you are purchasing a company that has been run by a third party – thorough due diligence is essential to ensure there are no hidden risks.
If there is any adverse relating to that company, whether that is debts to third party’s or accounts not showing the profitability that is expecting, then you will be taking on that risk – these are obviously not risks you take on when buying the property into one of your own entities.
Furthermore, legal fees for share purchases are also higher than standard property purchases, which can reduce the financial benefit if the property value is relatively low. These costs should be factored into your decision-making process.
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How can Advocate Finance help?
If you are considering purchasing a company that owns property rather than buying the property directly, we can guide you through the process. We specialise in complex property finance solutions tailored to your individual needs.
We provide a FREE assessment on all our services.
Please contact me directly for more information, or use the Get in Touch With Us Today feature at the bottom of this page.
