Business loans

Property VAT bridging loans: funding the VAT on a commercial property purchase

Fund the VAT on a commercial property purchase until HMRC repays it. How property VAT bridging loans work, typical terms from £25,000 and what lenders check.

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Amount: From £25,000Upper limit set by the lender and the VAT charged
Term: Short, until HMRC repaysOften a few months; up to 12 with some lenders
Security: Typically no personal guaranteeNo charge over the property
Works with: Your main purchase lenderCommercial mortgage or bridging loan

In short

What you need to know.

A property VAT bridging loan pays the VAT charged on a commercial property purchase, usually where the seller has opted to tax, and is repaid when HMRC refunds that VAT to the buyer.

Specialist lenders on our panel fund from £25,000 over short terms, typically without a personal guarantee or a charge over the property, and work alongside the buyer's main lender. The buyer must be able to reclaim the VAT, so the tax position needs confirming first.

What property VAT funding can be used for

VAT on the purchase price
the VAT added to the price of an opted-to-tax or new commercial building.
VAT on the deposit
where VAT is due on a deposit paid at exchange, some lenders fund that too.
VAT on land
opted-to-tax land bought for development or for a business's own use.
VAT on development costs
some lenders also fund the VAT on build and refurbishment costs as they are incurred.
Freeing up equity
keeping your own cash for the deposit, fees and works rather than tying it up with HMRC for months.

About property VAT bridging loans

Specialist knowledge. Better outcomes.

When a commercial property is sold with VAT on top, the buyer has to find an extra 20% of the price at completion, even though that VAT will usually come back from HMRC a few months later. Many commercial mortgage lenders lend only against the price excluding VAT. Some bridging lenders will fund the VAT as part of the purchase loan, but where the purchase lender will not, the money has to come from the buyer's own cash. A property VAT bridging loan fills that gap: a specialist lender pays the VAT, and the loan is cleared when HMRC repays it.

Smart Funding Solutions is a broker. We search the market for lenders that fund property VAT, set the VAT bridge alongside the main purchase funding and handle both lenders through to completion. This is a different product from a VAT loan, which spreads a VAT bill a business owes HMRC; here the VAT is a cost of buying property that the buyer expects to recover.

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How a property VAT bridging loan works

Confirm the VAT positionyour advisers confirm that VAT is chargeable, that the buyer is or will be VAT registered, and that the buyer can reclaim it, which usually means using or letting the property for a VAT-able business.
Arrange the main fundingthe purchase itself is funded by a commercial mortgage, a bridging loan or your own cash, as normal.
Agree the VAT bridgethe VAT lender assesses the purchase, the buyer and the expected refund. Some lenders on our panel release the VAT ahead of completion so it is ready for the completion statement.
Reclaim the VATthe buyer claims the VAT back on its VAT return. Some VAT lenders include help with VAT registration and the return itself.
Repay from the refundwhen HMRC repays the VAT, the loan and its costs are settled from the refund.

When VAT is charged on a commercial property purchase

Most sales of commercial land and buildings are exempt from VAT. VAT is charged in two common situations, both set out in HMRC's guidance on VAT on land and property (Notice 742):

The seller has opted to tax. An owner who has opted to tax a building or piece of land makes its sale standard-rated, so VAT is added to the price. HMRC explains how this works in opting to tax land and buildings (Notice 742A).
The building is new. The freehold sale of a new or part-completed commercial building is standard-rated. HMRC treats a building as new for three years after completion.

A sale of a let property can sometimes be treated as a transfer of a going concern, in which case no VAT is charged at all. Whether VAT applies, and whether you can reclaim it, is a question for your solicitor and accountant before you commit to the purchase or the funding.

Property VAT bridging or a VAT loan?

The two are easy to confuse because both carry the word VAT. A VAT loan helps a trading business pay the VAT it owes HMRC on its own sales, repaid in instalments from trading income. A property VAT bridge funds VAT you pay to a seller, and is repaid in one go from the refund HMRC makes to you. If you are buying premises and the seller is charging VAT, this page is the right one. If your quarterly return is due and cash is short, a VAT loan is.

Risks to weigh up

HMRC timing: large repayment claims can be checked by HMRC before they are paid, which can lengthen the loan and its cost.
The tax position: if the buyer cannot reclaim the VAT, or the sale should have been a transfer of a going concern, the refund the loan relies on may not arrive.
Two lenders: the VAT lender and the main lender both need to be ready for the same completion date.

Taking advice early on the VAT, and choosing a VAT lender that works alongside other lenders, removes most of these risks.

Underwriting

What lenders look at

The VAT invoice or contract showing the VAT charged, and evidence of the seller's option to tax where relevant.

The buyer's VAT registration, or an application in progress, and its own option to tax if it will let the building.

Confirmation of the main purchase funding and the completion timetable.

How quickly the VAT is likely to be repaid, including whether the buyer files monthly or quarterly returns.

The buyer's track record and the credit history of the company and its directors.

Side by side

Compare your options

How the main business finance structures work. Lenders set their own terms, so treat this as a guide to the questions to ask.

Option	How you repay	Security	Often used for
Unsecured business loan	Fixed instalments, usually monthly	No charge over assets; a personal guarantee is usually required	Growth, stock, tax bills and cash flow
Secured business loan	Fixed instalments, often over a longer term	A charge over property or other assets	Larger sums, property and refinancing
Revolving credit facility	Interest on what you draw; repay and redraw	Varies by lender and case	Recurring or uneven cash flow gaps
Merchant cash advance	A share of future card takings	No charge over assets	Card-taking businesses with uneven months
Asset finance	Regular payments over the life of the asset	The asset being financed	Equipment, vehicles and machinery
Invoice finance	Settled as customers pay their invoices	Your unpaid invoices	Businesses waiting on customer payment

General information only. Every lender has its own criteria, and all finance is subject to status.

Typical terms from lenders on our panel

Feature	What to expect
Amount	From £25,000; the upper limit depends on the lender and the deal
Term	Short: often around three to four months, and up to 12 months with some lenders
Security	Typically no personal guarantee, debenture or charge over the property
Main lender	Sits alongside your commercial mortgage or bridging lender
Borrower	An established borrower with a clean credit history
Cost	Interest for the time the VAT is outstanding, plus arrangement and application fees; rates on application

The figures above come from the published terms of property VAT lenders on our panel. Every lender sets its own limits and makes its own decision, and lenders on our panel generally look for an established borrower rather than a start-up.

How we arrange property VAT funding

Review the purchasewe look at the property, the price, the VAT and the main funding you have or need.
Search the marketwe approach property VAT lenders on our panel and, if needed, commercial mortgage or bridging lenders for the purchase itself.
Line up completionwe work with your solicitor so both lenders are ready on the same day.
Stay involvedwe keep in touch until the refund arrives and the VAT bridge is repaid.

Lenders make every credit decision. It is free to enquire; any broker fee is disclosed separately before you proceed. Start with our Instant Quotes tool, or read about buying business premises if you are still planning the purchase.

FAQs

Questions clients ask

What is a property VAT bridging loan?

It is a short-term loan that pays the VAT charged on a commercial property purchase, so the buyer does not have to find an extra 20% of the price from its own cash. It is repaid in one sum when HMRC refunds the VAT to the buyer through its VAT return.

How much can I borrow to cover VAT on a property purchase?

Lenders on our panel fund property VAT from £25,000. The upper limit depends on the lender and the deal, and is set by the VAT actually charged on the purchase, deposit or development costs. Tell us the price and the VAT and we will show you which lenders fit.

Is a personal guarantee needed for a property VAT bridging loan?

Usually not. The property VAT lenders on our panel typically lend without a personal guarantee, a debenture or a charge over the property, because the loan is repaid from the VAT refund. Each lender sets its own terms, so we confirm the security position before you proceed.

How long does it take HMRC to repay VAT on a property purchase?

The refund comes through the buyer's VAT return, so timing depends on when the return is filed and when HMRC pays it. Larger claims can be checked before payment. VAT bridges are therefore set for a few months, with some lenders allowing up to 12 months.

Can the VAT bridge sit alongside my commercial mortgage?

Yes. That is how it is normally used. The commercial mortgage or bridging loan funds the purchase price and the VAT lender funds the VAT. We coordinate both so they are ready for the same completion date.

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