Costs, SDLT and tax

Is VAT Bridging Interest Tax Deductible?

PropertyVAT Team · Updated 21 October 2026 · 3 min read

Short version: usually yes for a company borrowing for business purposes, but it is genuinely a question for your accountant rather than a rule you can apply from a web page.

Here is what to understand well enough to ask the right question.

The general principle

Interest is a cost of finance. Where borrowing is for the purposes of a business, relief for that cost is generally available — but the mechanism, and the restrictions, depend on who is borrowing and why.

Most commercial property purchases that need VAT funding run through a company, which is the most straightforward case. That does not make it automatic.

What actually determines the answer

The purpose of the borrowing. A VAT bridge funds a tax liability arising on a business asset acquisition. That is ordinarily a business purpose, which is the starting point for relief.

The use of the property. Where the property is used for a taxable business or let commercially, the position is usually clean. Where use is exempt, or partly exempt, or partly personal, the analysis gets more involved.

The entity. Companies and individuals are relieved under different rules, with different restrictions.

The accounting treatment. For companies, tax relief on finance costs generally follows the accounts, so how the interest and fees are recognised matters.

Interest versus fees

Do not assume everything on the lender's statement receives identical treatment.

• Interest is the clearest case.
• Arrangement and exit fees are often treated as finance costs alongside interest, but the treatment depends on their nature and how they are accounted for.
• Legal and professional fees connected to the acquisition may be capital rather than revenue, which is a different question again.

Give your accountant the actual facility documents rather than a summary. The labels on a loan statement do not always determine the treatment.

The VAT on the fees

A separate question that gets conflated with this one.

Many financial services are exempt from VAT, so there is often no VAT on lender interest or fees to reclaim in the first place. Where VAT is charged on a particular fee, whether you can recover it follows your ordinary input tax position — the same test as any other cost.

Why it matters for the decision

When comparing funding the VAT yourself against bridging it, the comparison should be on an after-tax basis where relief is available.

A gross financing cost of £5,400 is a smaller net cost to a company obtaining relief on it. That does not change the direction of the decision in most cases, but it does narrow the gap — and on larger facilities the difference is worth modelling properly rather than ignoring.

What it does not change is the stamp duty point. SDLT charged on the VAT-inclusive consideration is an unrecoverable cost whichever way you fund the VAT.

What to ask your accountant

1. Is interest on this facility deductible for this entity?
2. How are the arrangement and exit fees treated?
3. Does the intended use of the property restrict relief?
4. Is there VAT on any of the lender's charges, and is it recoverable?
5. What is the net cost of bridging, after relief, against the opportunity cost of self-funding?

This guide is general information, not tax advice. Tax treatment depends on your circumstances and on current legislation — confirm the position with your accountant.