VAT bridging loans:funding the VAT on a commercial purchase
A VAT bridging loan is short-term finance that pays the VAT charged on a commercial property purchase, repaid from the VAT refund once HMRC processes your return. When a seller has opted to tax, VAT is added to the price, and most senior lenders will only lend against the net price. Without a VAT bridge, you must find that extra sum in cash on completion, even though you expect to reclaim it a few weeks or months later.
We arrange VAT bridging loans across a wide panel of bridging lenders. This page explains when VAT applies to commercial property, how the loan is secured and repaid, what it costs, and where a transfer of a going concern (TOGC) may remove the need for it. VAT treatment is technical: take advice from your accountant or a VAT specialist on your own transaction.
Key takeaways
A VAT bridging loan pays the VAT on a commercial purchase and is repaid from the HMRC refund.
VAT usually applies where the seller has opted to tax or the building is a new commercial building.
Security is typically a second charge behind the senior lender or a charge on other property, often with control over the refund.
Minimum interest periods and fixed fees matter more on short VAT bridges.
A valid TOGC can remove VAT altogether; take advice from your accountant and solicitor on your position.
)}
When is VAT charged on a commercial property purchase?
Most sales of existing commercial property are exempt from VAT by default. VAT at the standard rate is usually charged in two situations:
The seller has opted to tax the property, which is common with investors and developers who want to recover VAT on their own costs.
The building is a new commercial building, broadly one completed within the last three years, where the sale is standard-rated regardless of an option.
The VAT is payable on completion on top of the price. On a larger purchase that is a significant sum: for example (illustrative), a warehouse bought for £2,000,000 plus VAT requires £400,000 of extra cash on the day.
Whether VAT applies to your deal, and whether you can recover it, depends on your VAT status, any option to tax you make and how you will use the building. This is a question for your accountant or VAT adviser, not your broker.
How does a VAT bridging loan work?
The VAT bridge runs alongside your main purchase finance:
Senior finance, often a commercial mortgage or bridging loan, funds the net purchase price less your deposit.
The VAT bridging loan funds the VAT due to the seller on completion.
You register for VAT (if not already registered) and, where needed, opt to tax and notify HMRC within the required timescales.
You submit a VAT return claiming the input tax. Some buyers move to monthly returns to speed up the reclaim; your accountant will advise.
HMRC repays the VAT, typically into an account the lender controls, and the bridge is cleared along with its interest and fees.
The lender's main focus is the reliability of that refund: correct registration, a valid option to tax where needed, and a credible VAT return timetable. They will usually ask for your accountant's confirmation of the reclaim position.
How much can you borrow, and can you fund 100% of the VAT?
Many lenders will fund the full VAT amount, because repayment comes from a government refund rather than a sale. The limiting factor is the security. Lenders look at the combined borrowing against the property:
The senior loan plus the VAT bridge should stay within the VAT lender's maximum combined LTV.
If combined borrowing is too high, additional security over another property can bridge the gap.
Fees and retained interest are added to the facility, so the gross loan is usually slightly more than the VAT itself.
Combined loan to value on commercial security commonly sits within 70% to 75% where a first charge is involved, and lower on second charges, specialist assets or land. Very large VAT bills move into the territory covered on our large commercial bridging loans page.
Have a deal in front of you?Send us the property and the numbers. We will tell you quickly whether it is fundable.
What security do VAT bridging lenders require?
Security is usually one of the following:
Security option
How it works
Points to watch
Second charge on the purchased property
VAT lender ranks behind the senior lender
Senior lender must consent; some refuse second charges
Same lender for both
One lender funds purchase and VAT under one facility
What is a TOGC, and does it remove the need for a VAT bridge?
A transfer of a going concern (TOGC) applies where a property letting business is sold as a going concern, for example an investment property sold with its tenants in place. Where the TOGC conditions are met, the sale is outside the scope of VAT, so no VAT is charged and no VAT bridge is needed.
In broad terms, the conditions include the buyer continuing the same letting business, being VAT registered, and opting to tax the property and notifying HMRC before the relevant date. If any condition is missed, VAT may be due after all, which can leave a buyer needing funds at short notice.
TOGC treatment is a matter for your solicitor and accountant, who will review the contract and your VAT position. From a finance perspective, we recommend agreeing a VAT bridge in principle as a fallback where TOGC status is uncertain. For owner-occupiers buying their own premises, see bridging loans to buy business premises.
What are the advantages and disadvantages of VAT bridging?
Advantages:
Keeps your working capital free instead of tying it up until HMRC repays.
Lets you complete on a purchase you could not otherwise fund on the day.
Repayment comes from a refund, which is a relatively predictable exit when registrations are in order.
Disadvantages:
Fees and minimum interest periods make it relatively expensive for a short loan.
HMRC may carry out checks before repaying, which can extend the term.
Second charge consent from the senior lender can slow completion.
Mistakes in registration or the option to tax can put the refund, and the exit, at risk.
Commercial bridging for business purposes is unregulated and we arrange it directly. We are not directly authorised by the Financial Conduct Authority, so if the security includes a home for you or a family member, we introduce the case to an authorised firm.
For longer-term finance on this type of property, see our sister site VAT Bridging Loans.
Unregulated commercial and investment bridging is arranged directly. Any case where the security includes a home you or an immediate family member occupies, including a flat above commercial premises, may be regulated and is introduced to a firm directly authorised by the Financial Conduct Authority. We are not directly authorised by the Financial Conduct Authority ourselves. Your property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
For a VAT bridge of £200,000, costs include monthly interest for the period until HMRC repays (subject to any minimum interest period), an arrangement fee of typically 1% to 2% (for example £2,000 to £4,000), legal fees and possibly an exit fee. Use our bridging cost calculator with a realistic refund timescale to model the total.
What does Martin Lewis say about bridging loans?
We cannot speak for Martin Lewis or MoneySavingExpert, and consumer guidance is generally written for homeowners rather than businesses paying VAT on commercial property. Our own view: a VAT bridge is sensible only when your VAT registration and reclaim position are confirmed by your accountant, because the HMRC refund is the exit.
Is there a cheaper alternative to a bridging loan?
Possibly. If the sale qualifies as a transfer of a going concern, no VAT is charged. You could fund the VAT from cash reserves, an existing business overdraft, or ask your senior lender whether they will fund VAT within the main facility. Each depends on your circumstances, so compare total cost and timing before choosing a VAT bridge.
Which lenders offer VAT loans in the UK?
VAT bridging is offered by a range of specialist bridging lenders, private credit funds and some senior lenders that fund VAT within their main facility. Appetite depends on loan size, security and whether a second charge is acceptable. We compare the lenders on our panel rather than recommend one name, so the lender fits your deal.
How long does it take HMRC to repay the VAT?
It depends on when your VAT return is submitted and whether HMRC carries out checks. Repayments on routine returns can arrive within weeks, but larger or first-time claims may be reviewed, which takes longer. Lenders set the term with a buffer for this, and your accountant can advise on return timing.
Do I need to be VAT registered to use a VAT bridging loan?
Yes. To reclaim the VAT you must be VAT registered, and in many cases you will need to opt to tax the property yourself and notify HMRC. Lenders usually want your accountant's confirmation of this before they lend. Take advice from your accountant on the steps and timing for your transaction.
