How To Get A Bridging Loan To Fund VAT On A Property Purchase

05-October-2017

05-October-2017 13:55

in Development

by Jennifer Stevenson

One of the main hurdles that property developers face is securing the finance to complete a purchase of a property. However, getting finance in place to cover the asking price of a property may not be enough to complete a purchase. This is because for some properties the developer will have to pay VAT, which at the time of writing sits at 20%.

It is not uncommon for new developers to overlook the need for additional funding for VAT, whereas often experienced developers have their capital tied up in multiple projects and do not have the finance available to cover VAT.

If you have a shortfall in funding and require additional finance to cover the VAT of a property, you may be able to access the required amount through a VAT bridging loan.

When do I need to pay VAT on a property?

VAT is not payable on every property transaction. If VAT was applicable to every residential property then it would essentially increase the housing market prices by 20%, which would make it more difficult for buyers and sellers alike.

As a general rule, VAT is usually payable on new commercial property sold as a freehold. VAT is not required for the majority of other buildings; however, it is important to double check this before committing to the purchase of a property.

VAT bridging loan

VAT bridging loans are fast, short term loans that have the ability to provide a substantial amount of finance in a small space of time. This allows you to obtain the funding you need to cover the VAT of a property, even in the event that you discover the requirement for VAT late in the purchase process.

A VAT bridging loan may provide:

Significant finance – It is possible to source between £50K and £2M
The funding you need quickly – Finance may be accessed within 5 to 7 working days depending on your circumstances
Flexible terms of finance – Terms of finance from 1 to 36 months

Typically, VAT bridging loan lenders will require the developer to have an exit plan in place before providing the finance. An exit plan is the method that the developer intends to use to repay the loan within the term of finance. An example of an exit plan for a VAT bridging loan is when the developer claims the VAT back at the end of the following financial year. This may be a long process and it is advisable to contact an independent adviser for assistance.

How can I get a VAT bridging loan?

If you need a VAT bridging loan, you may benefit from the assistance of a specialist property finance broker to get you the best financial solution for your set of circumstances.

Clifton Private Finance can help you access the finance you need to resolve your VAT issues. Through strong links to private banks, specialist lenders, family offices and wealth managers, Clifton Private Finance can find financial solutions that are not available to the general public.