What Is an SPV and Why Use One?
A Special Purpose Vehicle (SPV) is a limited company set up for one purpose: to own a single aircraft. The SPV is the registered owner of the jet; the ultimate owner holds shares in the SPV. This structure is widely used for business jet ownership in the UK and internationally, for three main reasons:
1. Liability Protection
If the aircraft is involved in an accident, incident or third-party claim, the liability sits with the SPV - not with the individual shareholder's other assets. This is particularly valuable for HNW individuals or business owners with significant personal or corporate wealth to protect.
2. VAT Efficiency
An SPV that makes taxable supplies (such as chartering the aircraft commercially under an AOC) may be entitled to recover the input VAT on the aircraft purchase. On a £5m aircraft, that is £1m of VAT potentially recoverable - a very significant saving.
3. Ownership Flexibility
Multiple investors can co-own shares in the SPV without having separate ownership of the aircraft. The SPV can be transferred as part of succession planning by transferring shares, which may be simpler and more tax-efficient than selling the aircraft itself.
How Lenders Approach SPV Lending
UK business jet lenders are generally comfortable with SPV structures. The key requirements are:
- Personal guarantees: The SPV has no trading history. Lenders require personal guarantees from the directors/shareholders - typically the individuals who will be using and paying for the aircraft
- The SPV must have a clear purpose: Lenders want to understand why the SPV exists. A genuine business rationale (VAT recovery, liability protection, charter income) is well-received; a purely tax-driven structure with no commercial substance may attract more scrutiny
- The aircraft must be insured in the SPV's name: Lenders take a charge over the aircraft and require it to be insured at replacement value with them noted as loss payee
- Management agreement: If the aircraft is managed by a third-party operator, lenders will review and approve the management agreement
VAT Position: SPV and Charter Use
The VAT analysis for a business jet SPV is complex and fact-specific. The general principle is:
- 1If the SPV makes taxable supplies (i.e. charges VAT on its supplies), it can recover input VAT on costs - including the aircraft purchase
- 2Commercial charter under an AOC is a taxable supply - an SPV that charters its aircraft under an AOC will typically be entitled to recover purchase VAT
- 3Private use only (no commercial supplies) means no VAT recovery - HMRC will deny the input tax claim
- 4Mixed use requires a careful apportionment - HMRC scrutinises aircraft VAT claims very closely
This is an area where specialist aviation VAT advice is essential before completing a purchase. The savings can be very large (£200,000–£2m+ on typical business jet transactions), but the risk of an incorrect claim is equally significant.
Worked Example: £3m Challenger 350 via SPV
| Parameter | Value |
|---|---|
| Aircraft | Bombardier Challenger 350 (2016) |
| Purchase price (ex VAT) | £3,000,000 |
| VAT (20%) | £600,000 |
| Total purchase price | £3,600,000 |
| SPV name | Aldgate Aviation Ltd |
| Shareholders | 2 individuals, 50/50 |
| Finance (HP, Lombard) | £2,400,000 (80% LTV on £3m) |
| Deposit | £600,000 (+ £600k VAT = £1.2m initial cash) |
| VAT reclaimed (charter use) | £600,000 - returned by HMRC within 30 days |
| Net cash committed at outset | £600,000 (after VAT refund) |
| Monthly HP payment (6.5%, 7yr) | ~£35,600 |
Illustrative only. VAT recovery subject to HMRC assessment and actual use pattern. Always take specialist advice.
Steps to Set Up a Business Jet SPV
- 1Incorporate the SPV: Register a new Ltd company at Companies House (24–48 hours). Choose a name that reflects the aircraft use
- 2Open a bank account: The SPV needs its own bank account for deposit funds and ongoing payments. Allow 1–2 weeks
- 3VAT registration: If the SPV will make taxable supplies (charter), register for VAT before the purchase to recover purchase VAT
- 4Finance application: Apply for finance in the SPV's name - directors provide personal guarantees
- 5Management agreement: If using a third-party operator or AOC holder, put the management agreement in place
- 6Insurance: Insure the aircraft in the SPV's name, noting the lender as interested party and loss payee
- 7Purchase completion: The SPV purchases the aircraft; the lender drawdowns to complete