Auction purchases

When VAT Puts Your Auction Deposit at Risk

PropertyVAT Team · Updated 21 October 2026 · 3 min read

Auctions concentrate risk into a moment. Everything that would normally happen between offer and exchange has to happen before the hammer, and the consequence of getting it wrong is immediate and financial.

What the hammer does

It forms a binding contract. From that moment:

• You are committed to buy at that price
• The deposit, usually 10%, is payable immediately
• Completion is due within the period set by the conditions, commonly around 28 days
• There is no cooling-off period and no due diligence window

If VAT applies and you have not planned for it, you need an extra 20% of the purchase price inside that window — plus stamp duty calculated on the VAT-inclusive figure.

How the exposure escalates

The common assumption is that the deposit caps the downside. Auction conditions frequently say otherwise — a seller who resells at a lower price may pursue the difference.

On a £900,000 lot, a forfeited deposit is £90,000. A shortfall claim on top of that is a materially worse outcome.

How VAT creates this specific failure

Four routes, in rough order of frequency.

The legal pack said VAT applied and nobody read it. The information was there. The bid was calculated on the hammer price.

The buyer was not VAT registered. Registration takes weeks. A buyer who wins on Thursday and starts registration on Friday cannot normally reclaim the VAT, and may struggle to fund it.

A TOGC was expected and failed. The pack proposed TOGC treatment, the buyer budgeted for no VAT, and the conditions were not met — often because the buyer's own option to tax was not notified by the relevant date.

Funding was assumed rather than arranged. The buyer expected their bank to cover it. Many senior lenders will not advance against VAT, and those that will rarely move inside 28 days.

The protection is arithmetic, not optimism

Calculate your maximum bid on the pessimistic case:

Hammer price
+ VAT at 20% (if it applies, or might)
+ SDLT on the VAT-inclusive figure
+ buyer's premium
+ legal fees and searches
= your true all-in cost

Bid to that number. If VAT then turns out not to apply, or a TOGC succeeds, you have bought better than planned. If it does apply, you can complete.

The buyers who lose deposits are almost always the ones who bid on the optimistic case.

Before the auction, not after

Three things, every time:

1. Have the legal pack reviewed. The special conditions state the VAT position. The cost of a solicitor reading it is trivial against a 10% deposit.
2. Get the buying entity VAT registered. Weeks, not days, and you cannot reclaim without it.
3. Have VAT funding agreed in principle. Specialist lenders can complete in around 48 hours, but only where registration is already in place.

With all three done, a VAT surprise is an inconvenience. With none of them, it is a lost deposit.

If you have already won and VAT has appeared

Move immediately, in this order:

1. Confirm the position with your solicitor from the contract — do not act on assumption in either direction.
2. Check your VAT registration status. This determines whether recovery is even available.
3. Recalculate the completion figure, including SDLT on the VAT-inclusive consideration.
4. Approach a specialist VAT lender now, not in week three. Funding in 48 hours is realistic; funding in 48 hours plus a VAT registration is not.
5. Talk to the seller's solicitor about the timetable, while you still have time to be reasonable about it.

The deposit is usually recoverable as a problem only in the first fortnight. After that, options narrow quickly.

This guide is general information, not legal advice. Auction conditions vary by lot — have a solicitor review the specific contract before bidding.