27th February 2024
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VAT Bridging
At Mortgage Lane, an award-winning broker, we provide expert VAT bridging finance advice for those purchasing VAT-registered properties or land. Our services offer an efficient solution for financing VAT costs while potentially awaiting a reclaim or to secure the cost. With our tailored bridging advice, we ensure a quick and seamless property transaction, backed by our recognised expertise in the field.
PROCESS BREAKDOWN
1
Information gathering and advice
The first process in your VAT bridging application will be gathering or updating information in relation to the property, tenants, or yourself. Once this has been established your expert auction loan broker will make a product recommendation.
2
Credit approval
Once you are satisfied with the product recommended and have confirmed to proceed, this will usually be submitted the same day to give you a decision, until this point there is still nothing to pay! As long as the Agreement in Principle (AIP) was approved, we can move to application stage where fees become payable.
3
Application, valuation & underwrite
Once the application is submitted, your valuation will be booked in and most of the time (depending on the lender). This will usually completed once your initial underwriting has been completed. Once the valuation is returned, if acceptable, the lender would then look to make a formal offer. You can then move to legal stage.
4
Offer and completion
Once you have had your VAT bridging offer, you will require adequate legal advice and then once you’re happy, your solicitor can draw this down once the legal requirements are satisfied. Your broker at Mortgage Lane will always be checking in on the application post offer, so we are chasing for you too.
once you have completed on the VAT loan you will need to execute your plan to repay the loan. This can be via the sale of a property, savings, revenue, or if you are reclaiming your lender will start their proceedings to reclaim the loan on your behalf.
Types of VAT Loans
At Mortgage Lane, we provide expert VAT bridging loan services for business owners and investors, particularly useful for properties subject to a minimum of 20% VAT, a common scenario that can impact cash flow during transactions. Our comprehensive guide explains the advantages of having a VAT loan. Lenders may also facilitate the reclaim process through the lender, easing the financial burden and administrative complexities for our clients.
What is VAT bridging
At Mortgage Lane, we offer specialised guidance on VAT bridging, a crucial financial tool for managing VAT on properties and land elected for VAT, including new freehold commercial properties less than three years old. VAT bridging becomes necessary when reclaiming VAT from HMRC, a process that can take up to six months.
Understanding VAT Bridging and Its Necessity
Election for VAT: Property owners may opt to charge VAT, enabling them to reclaim VAT on property-related expenses. This requires notifying HMRC within 30 days before making any exempt supplies.
Transfer of Going Concern (TOGC): If a property is being purchased as a TOGC, VAT is not payable.
VAT Bridging Loan vs. Cash Advance
VAT Bridging Loan: This is generally more suitable for funding VAT on property transactions. It’s specifically tailored to accommodate the time it takes to recoup VAT from HMRC.
Cash Advance: Known as a ‘merchant cash advance’, this is a short-term borrowing option used for business purposes, including VAT. However, it differs from a VAT bridging loan in terms and suitability for VAT financing.
How Mortgage Lane Can Assist with VAT Bridging
Loan Repayment Advice: We provide advice on how to spread loan repayments over an affordable term, ensuring financial viability.
Connecting with Lenders: Our expertise in VAT bridging enables us to connect you with suitable lenders, ensuring you have the right financial support for your VAT obligations.
At Mortgage Lane, we understand the complexities of VAT in property transactions and offer tailored VAT bridging solutions. Whether you’re dealing with reclaiming VAT or making informed decisions about VAT charges on your property, our team is here to guide you through the process and connect you with the right lending solutions.
reclaiming VAT on a property purchase
When dealing with a VAT bridging loan, the process of reclaiming VAT is typically managed by the lender on behalf of the borrower. Here’s how it generally works:
Loan Disbursement: First, the lender provides the borrower with the necessary funds to cover the VAT on the property purchase. This enables the borrower to complete the transaction without needing to pay the VAT out of their own funds.
Reclaim Process: After the transaction, the lender initiates the VAT reclaim process with HM Revenue and Customs (HMRC). This involves submitting the necessary documentation and proof of the VAT paid during the property transaction.
Communication with HMRC: The lender handles all communications and follow-ups with HMRC regarding the VAT reclaim. They use their expertise to ensure that the process is carried out efficiently and in compliance with all regulations.
Receipt of VAT Refund: Once HMRC processes the claim and approves the VAT refund, the reclaimed amount is paid back. Typically, this process can take up to six months.
Repayment of the Loan: Upon receiving the VAT refund from HMRC, the lender then applies this amount to the outstanding VAT bridging loan. Depending on the terms of the loan, any remaining balance (if the refund does not cover the entire loan amount) or any interest accrued will then be repaid by the borrower.
It’s important to note that while lenders facilitate the VAT reclaim process, the ultimate responsibility for the VAT and the loan lies with the borrower. Therefore, it’s crucial to work with a knowledgeable and experienced lender who can navigate the complexities of VAT reclaims. At Mortgage Lane, we connect our clients with such lenders, ensuring a smooth and hassle-free VAT bridging loan experience.
INTRODUCTION TITLE TO VIDEO
Experts in VAT bridging loans
At Mortgage Lane we are specialists in VAT bridging, often we assist clients buying commercial land or buildings that are elected for VAT, before developing into residential. Given the intended use being residential and therefore not VAT applicable, applicants usually seek to reclaim the VAT. We assist a wide variety of customers including business owners with expansions which might sometimes involve financing VAT on new premises. We see the following property types initially looking to be converted to residential:
- Retail
- Semi commercial
- Light Industrial
- Hotels
B&Bs This thread is not legal or tax advice, if anyone is looking to do anything noted in the contents, we recommend you speak with a qualified individual.
TRY OUR VAT LOAN CALCULATOR
ANSWERS TO COMMON QUESTIONS AND QUERIES ABOUT VAT BRIDGING
What Loan to Value is a VAT bridging loan?
At Mortgage Lane, we are able to arrange VAT bridging loans typically up to 100% Loan to Value (LTV) of the VAT portion, often without requiring additional security. We collaborate with lenders who are comfortable securing the loan against the anticipated HMRC VAT recovery.
What is the minimum loan size required for an VAT bridging loan?
In the field of VAT bridging loans, it’s important to note that there isn’t a universally fixed minimum loan size. However, the criteria for these loans can differ significantly among lenders. Many leading lenders in the VAT bridging loan market typically set their loan amounts starting at around £50,000 or more.
Variability in VAT Bridging Loan Criteria:
Lender-Specific Terms: The VAT bridging loan market is characterised by a variety of terms specific to each lender, including differences in minimum loan sizes. This diversity reflects the unique approaches and risk assessments employed by different lenders in this sector.
Market Standards for Loan Amounts: Key players in the VAT bridging loan space often establish a baseline for loan amounts, which usually begins at £50,000. This standard forms part of their strategic lending criteria.
Mortgage Lane’s Expertise in VAT Bridging Loans:
Understanding Lender Requirements: As specialists in VAT bridging loans, Mortgage Lane provides expert guidance in navigating the varied lender requirements, including understanding the nuances of minimum loan sizes.
Tailored Loan Solutions: We are dedicated to offering customised VAT bridging loan solutions, ensuring that our clients are matched with options that suit their financial circumstances and VAT financing needs.
While there’s no uniform minimum loan size for VAT bridging loans across all lenders, grasping the different thresholds set by various lenders is crucial. Mortgage Lane is adept at helping borrowers explore these options, ensuring they secure a VAT bridging loan that meets their specific requirements and aids in their property transactions.
Is VAT bridging used to buy at auction?
Yes. Many of our clients use Bridging Loans to purchase properties from auction. It is good to instruct your broker immediately so you can establish which solicitor you may be dealing with. It is important to note that most short term lenders offering Auction Loans will have a closed legal panel and therefore your chosen solicitor may not be able to act.
Where do you broker VAT bridging Loans in the UK?
We assist our clients with VAT bridging loans in England, Wales, Scotland, and Northern Ireland.
How long does a VAT bridging loan take to complete?
VAT bridging loans are known for their quick turnaround times, and in many cases, they can be secured in as little as 48 hours. This rapid processing ensures that you have the necessary funds in place before you bid, giving you the confidence and financial backing needed for a successful auction experience.
What is the VAT bridging legal process?
Arranging a VAT bridging loan involves a specific legal process to ensure compliance and security for both the borrower and the lender. Here’s a breakdown of the process and the approach to interest charges in VAT bridging:
Application and Approval: The initial step involves applying for a VAT bridging loan, where the borrower provides necessary financial details. Lenders assess these details, focusing on the borrower’s creditworthiness and the likelihood of VAT recovery from HMRC.
Legal Documentation: Once approved, legal documentation is drafted. This includes the VAT bridging loan agreement, detailing terms like interest rates and repayment schedules.
Securing the Loan: If the VAT bridging loan requires collateral, such as a second legal charge on property, this is arranged and legally documented to guarantee the loan
Interest Rates on VAT Bridging Loans: Interest is usually charged from the date of fund disbursement until full repayment. The rates can be fixed or variable, depending on the lender and loan terms.
Funds Disbursement: After legal formalities, the VAT bridging loan amount is released to the borrower for VAT payment on their property purchase.
Reclaiming VAT and Repaying the Loan: The borrower then reclaims the VAT from HMRC. Following the VAT recovery, the loan, along with accrued interest, is repaid to the lender.
Finalising the Process: The legal closure of the loan involves releasing any security on the property and closing the loan account once repayment is complete.
In VAT bridging, this legal process is crucial for protecting the interests of all parties involved. Mortgage Lane assists clients through every stage of securing a VAT bridging loan, ensuring a clear understanding of the interest implications and compliance with legal requirements.
How is interest paid on an VAT bridging loan?
VAT bridging lenders receive their payment primarily through the interest accrued on the loan and the repayment of the principal amount. Here’s a detailed explanation of the payment process:
Interest Payments: In a VAT bridging loan, the lender charges an interest rate on the borrowed amount. This rate could be fixed or variable and is applied to the principal sum. The borrower is responsible for paying this interest throughout the loan term or until the entire loan is repaid.
Repaying the Principal: The principal, which is the actual sum borrowed for VAT purposes in a property transaction, is repaid according to the agreed schedule in the loan agreement. Repayment can be structured as a lump sum or over a set period.
VAT Recovery and Loan Clearance: After using the VAT bridging loan to handle VAT payments, the borrower reclaims the VAT from HMRC. Once reclaimed, the borrower then repays the loan’s principal and the accrued interest to the lender
Additional Fees: Some VAT bridging loans may include additional fees like arrangement or service fees, which could be incorporated into the loan or paid separately.
Early Repayment Fees: If the borrower repays the VAT bridging loan earlier than agreed, there might be early repayment charges, as specified in the loan terms.
Overall, VAT bridging lenders are compensated through the interest generated on the loan and the return of the loaned amount. Mortgage Lane ensures that clients seeking VAT bridging loans are fully informed about these financial aspects, providing clarity on all fees and repayments involved in the loan process.
What entities can take out a VAT bridging Loan
We arrange cost-effective VAT Bridging loans for:
- Individuals
- Special Purchase Vehicles/Limited Companies
- Limited Liability Partnerships (LLP)
- Trading companies
- Charities
- On/Offshore Trusts
Can you apply for an VAT bridging Loan before the Auction?
Yes, you can apply for a VAT bridging loan before attending an auction. In fact, securing your financing in advance can be a wise move. VAT bridging loans are known for their quick turnaround times, and in many cases, they can be secured in as little as 48 hours. This rapid processing ensures that you have the necessary funds in place before you bid, giving you the confidence and financial backing needed for a successful auction experience.
Are VAT bridging Loans regulated?
It is important to note that VAT bridging loans are not covered by the Financial Services Compensation Scheme, unless they intend to reside in the property, so auction loan investment borrowers should ensure they are dealing with a reputable lender.
Learn more about mortgages with Mortgage Lane
At Mortgage Lane, we see the most complex of VAT bridging loan applications, some of which make a good read for investors looking to learn from other applicants challenges, or for those effected by the topics! See more refurbishment loan topics covered in our blog here.