An effective solution for funding VAT on commercial properties
Updated: Mar 13, 2019
VAT on the purchase of a commercial property can create a short-term funding gap, in the worst case, one that can stop deals completing.
Financial Intermediary and Brokers Association (FIBA) turned to Bridging VAT to explain how VAT bridging can help solve this short-term challenge.
Our subsequent article in FIBA’s February newsletter explains the background and context to the VAT problem and how VAT bridging can provide a solution. You can view the full article by clicking here.
The article explains that as the majority of commercial property is subject to an “Option to Tax”, most purchasers will need to consider how to fund the VAT for a period of 30 -150 days from completion to receipt of the VAT recovery.
If the purchaser is financing the purchase with debt funding, most commercial mortgage lenders adopt a maximum ‘loan to value’ criteria of 70-80% of the purchase price, excluding any VAT payable. This leaves many borrowers experiencing difficulty in securing the short-term funding required to settle the VAT.
The Bridging Vat lending product provides a solution to this problem: short-term secured loans that recognise the security of the VAT recovery from HMRC, rather than focussing purely on the underlying property. Unlike most lenders, we are not restricted by fixed loan to value criteria and this explains why we are happy to operate as second or even third charge holders, behind senior debt and mezzanine funders.
As opposed to just funding the product, we become the borrower’s authorised VAT agent. In the period between offer and advancing a loan, we work closely with the borrower, using in-house tax expertise, to ensure the borrower is “Recovery Ready”.
After completion of the loan, we manage the VAT reporting process and communicate directly with HMRC on the borrower’s behalf. Our approach ensures the VAT loan is outstanding for the shortest possible time, reducing our risk and the borrower’s cost.
If you would like to find out more, please talk to the VAT funding experts. We can be contacted by email at email@example.com or by telephone on 01206 645 050.