Specialist VAT loans for hospitality property purchases
The short bridge that funds the VAT charged when you buy a commercial hospitality property, covering the 20 percent due at completion until you reclaim it from HMRC a quarter later. A VAT loan stops the tax from tying up the cash meant for the deposit and the works, and it repays itself from the reclaim. We arrange and place VAT loans on hospitality purchases across the UK.
What is a VAT loan?
A VAT loan is a short-dated, self-liquidating facility that funds a VAT liability until it is recovered or paid down, most usefully the VAT charged on the purchase of a commercial property. When a business buys a commercial building on which VAT applies, because the seller has opted to tax it, VAT at 20 percent is payable on the purchase price at completion, on top of the price itself. On a hospitality purchase that can be a very large sum: the VAT on a 1 million pound hotel or pub is 200,000 pounds due on the day. The buyer usually reclaims that VAT from HMRC on the next quarterly return, so it comes back within a few months, but in the meantime the cash has to be found, and it is cash the buyer would rather put into the deposit, the fit-out or the trade.
How does a VAT loan work? The lender advances the VAT amount at completion, so it is paid across with the purchase price, and the buyer then reclaims the VAT from HMRC on the usual quarterly VAT return. When the reclaim is repaid by HMRC, typically within one to four months depending on where completion falls in the VAT quarter, that money repays the VAT loan. The facility is short and defined, and it repays itself from the reclaim rather than out of trade, which is what makes it low risk and quick to arrange. A VAT loan is also used more broadly to spread a quarterly VAT bill for cashflow, but on a property purchase the value is that it frees the buyer from having to find the 20 percent from their own working capital at the worst possible moment.
We are a finance arranger, not a lender. We place property VAT loans with the specialist lenders that fund transactional VAT, and we line them up alongside the purchase so the VAT is covered on the day of completion without draining the cash meant for the deal. It is a small, precise piece of a hospitality acquisition, but getting it wrong, or finding the VAT from the deposit, can undersize the whole purchase. All terms are illustrative, subject to lender credit approval, and not an offer of finance.
- A short, self-liquidating facility that funds the VAT on a commercial property purchase
- Covers the 20 percent VAT due at completion when the seller has opted to tax
- Repaid from the HMRC reclaim on the next quarterly VAT return, usually within one to four months
- Frees the buyer's cash for the deposit, the fit-out and the trade rather than the tax
- Also used to spread a routine quarterly VAT bill for seasonal cashflow
- Placed with specialist transactional-VAT lenders, arranged alongside the purchase
Indicative terms
- Loan sizeThe VAT due on the purchase, typically 20 percent of the price
- TermVery short, usually 1 to 4 months to the HMRC reclaim
- RateIndicatively priced for the short term; varies by lender and deal
- RepaymentSelf-liquidating from the HMRC VAT reclaim
- SecurityOften a charge over the reclaim, sometimes alongside the property
- UseVAT on a commercial purchase, or spreading a quarterly VAT bill
- SpeedArranged quickly and timed to the completion date
- FitBuyers of opted-to-tax hospitality property who will reclaim the VAT
Indicative only. Terms vary by lender, scheme and borrower and are not an offer of finance.
Who it suits
- Buyers of a hotel, pub or restaurant where the seller has opted to tax
- Investors who would rather keep their cash in the deposit and the works
- Operators completing a purchase where the VAT is a large day-one sum
- Businesses spreading a routine quarterly VAT bill through a quiet season
- Buyers where the transaction is not a transfer of a going concern
Discuss vat loans
A view on fundability within one working day.
How a VAT bridge on a property purchase works
Confirm the VAT position
We check that VAT applies, usually because the seller has opted to tax and the deal is not a transfer of a going concern, and size the VAT due at completion.
Arrange the facility
We place a VAT loan with a specialist transactional-VAT lender, sized on the VAT amount and timed to the completion date.
Fund the VAT at completion
The facility advances the VAT so it is paid across with the purchase price, keeping the buyer's own cash in the deposit and the works.
Repay from the reclaim
The buyer reclaims the VAT on the next quarterly return, and HMRC's repayment clears the loan, usually within one to four months.
Who a VAT loan suits and what lenders need
A property VAT loan suits a business buying a commercial hospitality asset on which VAT is chargeable and which it will be able to reclaim, so the first question is always the VAT position of the deal. VAT applies where the seller has opted to tax the property, and the buyer can reclaim it where they are VAT-registered and will use the property for a taxable business, which most trading hospitality does. Where the purchase qualifies as a transfer of a going concern, a TOGC, no VAT is charged at all and no VAT loan is needed, so confirming whether the deal is a TOGC is the key step, and one for the buyer's accountant and solicitor to settle. The lender needs to see that VAT is genuinely due, that the buyer is registered and will reclaim it, and that the reclaim is clean, because the facility is repaid from that reclaim. Because the loan is short and self-liquidating from an HMRC repayment rather than out of trade, it is quick and straightforward to arrange relative to term debt, and it is assessed more on the VAT position than on the trading accounts. We work with the buyer's advisers to confirm the position and size the facility to the day.
How much you can borrow and the reclaim timeline
A property VAT loan is sized on the VAT due at completion, which is normally 20 percent of the purchase price where the seller has opted to tax, so on a 1.5 million pound hotel the facility is around 300,000 pounds. The term is set by the reclaim timeline: the buyer recovers the VAT on the quarterly VAT return that covers the completion date, and HMRC repays it after the return is filed and processed, so the total window from completion to repayment is usually one to four months, depending on where completion falls in the VAT quarter. A completion early in a quarter waits longer for the reclaim than one just before the quarter end, so the facility is termed to cover the realistic window with a margin. Because the loan repays itself from the HMRC repayment, the borrowing is defined and finite rather than open-ended, and the buyer is not relying on trade to clear it. We size the facility to the VAT and term it to the reclaim, so it is in place for exactly as long as the tax is outstanding. The figures are illustrative, vary by deal, are subject to credit approval, and are not an offer.
What a VAT loan costs across the short term
A VAT loan is priced for its short life, so although it is charged at a monthly or short-term rate, the total cost is modest relative to the VAT sum, because it is only outstanding for a matter of months. Expect interest for the short term, an arrangement fee, and sometimes a small facility or legal cost, all set against the value of keeping the buyer's own cash in the deal rather than locked up in tax for a quarter. The real economics are about opportunity: the VAT on a hospitality purchase is a large sum that would otherwise come out of the deposit or the working capital, and funding it for a few months for a modest cost usually beats undersizing the purchase or straining the trade to find it. Because the facility self-liquidates from the reclaim, there is no long tail of interest, and the cost is known and finite from the outset. We disclose our broker fee in writing, quote the all-in cost across the short term, and never claim an exclusive tie to any lender. The figures are indicative and not an offer of finance.
A VAT loan against funding the VAT from cash or the deposit
The alternative to a VAT loan is finding the VAT from the buyer's own resources, and whether that is sensible depends on the deal. Funding the VAT from cash is cheapest in headline terms, but it ties up a large sum for a quarter at the exact moment the buyer needs cash for the deposit, the legals and any fit-out, so it can force a smaller purchase or a thinner working-capital buffer. Taking the VAT out of the deposit is worse, because it reduces the equity going into the property and pushes up the loan to value on the main mortgage, which can raise the rate or breach the lender's cap. A VAT loan keeps the deposit and the working capital intact by funding the tax separately and letting it clear itself from the reclaim, at a modest, finite cost. Where the buyer has ample spare cash and no better use for it over the quarter, funding the VAT directly is fine; where the cash is working elsewhere in the deal, the VAT loan usually wins. We model both so the VAT is funded the way that leaves the purchase strongest.
VAT loans: common questions
How does a VAT loan work?
On a commercial property purchase where the seller has opted to tax, VAT at 20 percent is due at completion on top of the price. A VAT loan advances that VAT so it is paid across with the purchase price, and the buyer then reclaims the VAT from HMRC on the next quarterly VAT return. When HMRC repays the reclaim, usually within one to four months, that money clears the VAT loan. The facility is short and self-liquidating, so it repays itself from the reclaim rather than out of trade.
Is VAT charged on the purchase of a hospitality property?
It depends on the seller's VAT position. VAT at 20 percent is charged where the seller has opted to tax the property, which is common on commercial buildings. Where the sale qualifies as a transfer of a going concern, a TOGC, typically an operating hotel or pub sold with its trade, no VAT is charged at all. Whether a deal is a TOGC is a matter for the buyer's accountant and solicitor to confirm, and it decides whether a VAT loan is needed. We size the facility once the position is settled.
What is the 4 year rule for VAT?
The four-year rule is the general time limit for reclaiming VAT and correcting VAT errors: input VAT can normally be recovered up to four years back, subject to the usual conditions. It is not a barrier to reclaiming the VAT on a property purchase, which is recovered on the return covering completion, well within any limit. A VAT loan simply bridges the gap between paying the VAT at completion and recovering it on that return, so the reclaim is made promptly rather than years later.
Is VAT applicable on loans?
No, the interest and the provision of a loan are generally exempt from VAT, so a VAT loan does not itself attract VAT on its interest. The VAT in question is the VAT charged on the property purchase, which is what the loan funds, not VAT on the borrowing. The buyer reclaims that property VAT from HMRC in the normal way, and the reclaim repays the loan. We are a finance arranger, not a tax adviser, so the VAT treatment of a specific deal should be confirmed with the buyer's accountant.
How long does a VAT loan last?
Very short, usually one to four months, because it is repaid from the HMRC reclaim on the quarterly VAT return that covers completion. The exact window depends on where completion falls in the VAT quarter: a completion just before a quarter end recovers the VAT sooner than one early in a quarter. We term the facility to cover the realistic reclaim window with a margin, so it is in place for exactly as long as the VAT is outstanding and self-liquidates when HMRC repays. The figures are indicative and not an offer.
Why not just pay the VAT out of my own cash?
You can, if you have ample spare cash and no better use for it over the quarter. But the VAT on a hospitality purchase is a large sum, and paying it from your own resources ties that cash up at the moment you most need it for the deposit, the legals and any fit-out. Taking it from the deposit is worse, because it raises the loan to value on the main mortgage. A VAT loan keeps your cash working in the deal and lets the tax clear itself from the reclaim, at a modest, finite cost.
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