HCR Law Events

16 February 2022

Maxed out on your loan to value? Why not get a VAT loan?

Despite the setbacks seen with the emergence of Omicron, the commercial property investment market has seen a sharp increase in volume and, inevitably, an increase in asking prices over the last year. Demand for commercial investment is high and investors are keen to do business.

So much so that investors are increasingly finding themselves having to offer above and beyond the asking price. In doing so, they feel the pinch when it later transpires that the property is, in fact, elected for VAT. This results in committing not only to the purchase price and stamp duty land tax but also VAT of 20% on top! Even though you may be able to reclaim the VAT from HMRC, the payment is still due at the time of purchase.

Coupled with the pressure to complete at breakneck speed, investors are frequently finding themselves struggling to come up with the extra funds quickly and safely without adversely impacting cash flow and working capital.

If this sounds familiar, there is a solution. You can raise short term finance to cover up to 100% of the additional cost of the VAT, ensuring the timely completion of the deal, with repayment to follow once it has been reclaimed from HMRC.

Some lenders allow the loan to be secured solely on HMRC recovery, rather than the property itself, freeing you up to obtain independent funding towards the purchase price.

Although you will no doubt see a higher rate of interest, depending on the quality of your lender and your legal team, turnaround times can be achieved quickly, and the process made straightforward. Fully managed facilities from experienced lenders will allow you to sit back and let them oversee the HMRC recovery process post completion, for a quicker, smoother VAT recovery.

The VAT loan market is not new but current conditions are driving growth in this area, and with it, an increased pool of lenders for you to choose from.

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About the Author
Clare Day, Partner, Head of Real Estate Finance

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Clare Day is a Cardiff solicitor, specialising in Real Estate.

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