Bridging Loans & Finance for VAT

VAT Bridging Loans

To fund the required 20% tax when purchasing commercial property, property investors can take out a VAT bridging loan.

Since many commercial property transactions stipulate that the VAT is paid to HMRC upfront, a property purchase can seriously affect the cash flow of a business. VAT loans (also referred to as VAT funding or VAT finance) are there to bridge this gap until a company can claim the VAT back.

What is a VAT Bridging Loan?

A VAT bridging loan is a form of VAT finance which enables businesses to pay the VAT due at completion of commercial property transactions upfront. This type of VAT loan is classified as short-term finance and serves as a pit-stop while investors wait for HMRC to refund their VAT (within 30 to 90 days). It’s a way of avoiding delays associated with more traditional funding, and a safeguard which helps avoid capital being tied up in property transactions.

How Does a VAT Bridging Loan Work?

The VAT loan application process will vary between individual lenders, but the general principles remain the same. Say you’re making a £1m commercial property purchase – you’d be required to pay £200,000 (20%) VAT at the time of completing the property transaction.

Paying such a significant sum upfront can have a detrimental effect on your cash flow, diverting money away from essential operations. A VAT loan helps avoid this by providing the funds to cover this transaction. Then, once the HMRC has processed a refund, you can repay your VAT bridging loan and continue business as usual.

When is VAT Chargeable on a Commercial Property?

Not all commercial property purchases require VAT funding, as it’s not always chargeable. Some cases in which you might need to pay it (and therefore consider a VAT loan) include:

• Buying a newly built commercial property (buildings no older than three years).
• Certain investment properties and development sites.
• Property transactions where the seller has specifically opted in for VAT tax.

How Long Does it Take to Get VAT Funding?

Like most short-term loans, VAT bridging loans are designed to be accessible quickly. This means once you’ve submitted your application and it’s had the green light, you might be able to access your VAT finance within as little as five to ten working days. This efficiency is instrumental in making sure there are no delays to your commercial property transaction.

Who is Eligible for a VAT Bridging Loan?

VAT bridging loan eligibility depends on the transaction and borrower details. However, VAT finance is generally available for:

• Applicants who have a VAT registration with HMRC.
• Borrowers looking to purchase commercial property (individual businesses, investors, developers).
• Commercial property purchases where VAT is chargeable on the property transaction.
• Buyers with a sound exit strategy (most often claiming back VAT from the HMRC).

Advantages of VAT Bridging Loans

Efficiency: A VAT loan can be paid out within less than a fortnight, ensuring you have the necessary funds to proceed with your commercial property purchase without delays.

Cash flow safety: Having to subsidise VAT funding from your company’s budget can have a serious impact on your working capital. With a VAT bridging loan, you keep your cash flow protected without missing out on investment opportunities.

Short-term solution: Most VAT loans have a built-in exit strategy – thanks to the HMRC tax refund process, you can repay your loan within three months.

Why Choose Pure Property Finance for VAT Loans?

Our team has extensive specialist experience arranging VAT bridging loans for various commercial property transactions. We offer borrowers access to specialist VAT loan providers whose services are tailored to the time-sensitive nature of property transactions. So, whatever your specific requirements, we’ll find a VAT finance solution to suit your needs.

Looking for VAT funding to finance commercial property investment opportunities? Contact our team today for expert advice and a custom funding solution.