In the UK, land and commercial properties (unless less than 3 years old) are by default treated as VAT exempt, meaning VAT is not charged on sale proceeds or rental income. This creates a potential problem with irrecoverable VAT – even if you are VAT registered. If you don’t charge VAT on your sales, you can’t reclaim the VAT you have paid out on expenses.
The answer is an ‘Option to Tax’, the land or commercial property owner irrevocably notifies HMRC that they want all sales proceeds or rental income associated with the property to be taxable at the standard rate of VAT (20%).
When land or commercial property that is ‘Opted to Tax’ is sold the purchaser must fund 120% of the purchase price until they recover the VAT element from HMRC. Lenders will typically offer loans on land and commercial property of up to 65%-70% of the purchase price and many won’t fund the VAT. The solution is for the purchaser to take a short-term bridging loan to cover the VAT, which is then reclaimed from HMRC typically within 30 to 90 days of completion.
Although the market is growing, VAT bridging loans are still only available from a relatively small pool of lenders who provide the secure short term lending product. From the lenders point of view, there are several securities in place for the loan, including taking a second charge over the property being purchased behind any senior debt, a debenture and personal guarantee.
Arranging additional finance at short notice can be a challenge for property purchasers who are not aware of the need to pay VAT on commercial property transactions until late in the sale process. However, VAT bridging loans offer a quick and efficient solution, with some lenders able to arrange loans in as little as five days. This can help ensure that the deal is completed without any significant delays.
Shadow Capital Partners have built a fund around this secured short-term lending product that is designed specifically to cover VAT payments on UK commercial property purchases. With a proven track record of VAT recovery, attractive interest rates, and convenient liquidity options, this fund is designed to deliver consistent returns while ensuring investor confidence.
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