VAT bridging finance

VAT Bridging Loans Explained: Funding the VAT on a Commercial Property Purchase

PropertyVAT Team · Updated 20 October 2026 · 5 min read

Commercial property is normally exempt from VAT. But when the seller has opted to tax, or the building is new, the buyer has to find an extra 20% of the purchase price on the day of completion — then wait weeks or months to get it back from HMRC.

On a £1.5m purchase that is £300,000 of working capital, tied up for a quarter, for no commercial return. A VAT bridging loan exists to close that gap.

What is a VAT bridging loan?

A VAT bridging loan is short-term finance that covers only the VAT element of a commercial property purchase. It is drawn at completion, and repaid from the VAT reclaim once HMRC processes your return.

It differs from a standard bridge in three ways:

• It funds the VAT only, not the purchase price. Your senior debt sits separately and is unaffected.
• It is repaid from an HMRC receipt, not from a sale or refinance. The exit is a tax refund, which is far more predictable than a property exit.
• It can often be unsecured against the property, because the lender is underwriting the strength of your VAT reclaim rather than the asset.

When is VAT payable on a commercial property purchase?

VAT is due at completion in two main situations:

The option to tax belongs to the seller, not the buyer. You cannot choose to avoid it, so the only reliable way to know your position is to check the special conditions in the contract or legal pack before you exchange.

TOGC is worth real attention. If the property is let and the sale genuinely transfers a continuing rental business, the transaction can fall outside VAT entirely — removing both the funding problem and the stamp duty on the VAT. The conditions are strict and fact-specific, and getting them wrong after exchange is expensive, so take VAT advice before you commit.

How a VAT bridge works, step by step

1. Confirm the VAT position. Your solicitor checks the legal pack for an option to tax or a new building.
2. Get VAT registered and opted, if needed. This is the single most common cause of delay. HMRC acknowledgement of an option to tax can take several weeks.
3. Apply for the facility. The lender assesses the reclaim, not just the asset.
4. Draw at completion. Funds go to your solicitor to pay the VAT alongside the purchase price.
5. Submit your VAT return. Usually at the end of the VAT quarter in which you completed.
6. HMRC repays, and the loan clears. The facility is redeemed from the refund.

What does a VAT bridging loan cost?

Pricing is normally quoted as a daily or monthly rate, because the term is short. Rates from around 0.03% per day are available on strong cases, alongside an arrangement fee.

The number that matters is not the headline rate but the total cost over the actual term. A facility priced at 0.03% per day on £300,000 costs roughly £90 a day, so a 60-day reclaim cycle costs in the region of £5,400 plus fees.

Set that against the alternative. Funding £300,000 yourself for the same period is £300,000 you cannot deploy into the next acquisition, a deposit, or your own trading business.

VAT bridging versus the alternatives

What lenders need to see

Underwriters are assessing one thing above all: how certain and how fast the HMRC repayment will be. Expect to provide:

• The purchase contract or auction legal pack showing the VAT position
• Your VAT registration number, and the option to tax notification where relevant
• Details of the buying entity, including whether it is a newly formed SPV
• Your solicitor's details and the completion date
• Recent VAT returns, if the entity has a filing history

A first-time SPV with no VAT filing history is fundable, but it is the profile most likely to attract an HMRC pre-repayment check — so build extra time into the facility.

Why VAT funding falls over

In practice, deals rarely fail on the lending. They fail on timing:

• VAT registration started too late. Registration and the option to tax both take time, and you cannot reclaim VAT you were not registered for at the point of purchase.
• The VAT position was assumed, not checked. The legal pack is the authority, not the agent's particulars.
• A TOGC was expected but not achieved. If the conditions fail at the last minute, 20% appears on the completion statement with days to go.
• The reclaim quarter was missed. Completing just after a VAT quarter end can add up to three months to the reclaim, and therefore to the interest bill.

Is a VAT bridge right for your deal?

It usually is where the VAT is large relative to your free cash, where the completion date is fixed, or where the capital has a better use. It usually is not where the sum is small enough to absorb comfortably, or where the sale is likely to qualify as a TOGC and carry no VAT at all.

The decision is rarely about whether you can fund the VAT. It is about what that money would otherwise be doing for the one to three months it would be sitting with HMRC.

This guide is general information, not tax or financial advice. VAT on property is highly fact-specific — confirm your position with your accountant or VAT adviser before exchange.