VAT on Commercial Property Purchase
When buying a VAT-elected commercial property, 20% VAT is due at completion - but you can reclaim it as input VAT once registered. HMRC's refund takes 3-4 months.
Bridging the 20% VAT at Completion
A VAT bridging loan covers the 20% at completion and is repaid from the HMRC reclaim. At very low LTV (the VAT element is typically 20% of the purchase price = 20% LTV on the property), this is some of the cheapest bridging available.
Commercial Property VAT Bridge - August 2026
| Property value | VAT element | Rate at ~20% LTV | Estimated 4-month cost |
|---|---|---|---|
| £500,000 | £100,000 | 0.60%/month | ~£5,900 (interest + fees + legal) |
| £1,000,000 | £200,000 | 0.58%/month | ~£10,200 |
| £2,000,000 | £400,000 | 0.55%/month | ~£17,900 |
| £5,000,000 | £1,000,000 | 0.55%/month | ~£41,000 |
Indicative rates - August 2026. Rates change daily. Actual rate depends on LTV, security, credit profile, loan size, and exit strategy. Contact our team for a live rate comparison for your specific case. All rates sourced from lender product sheets and publicly available market data.
What determines your rate
When does commercial property attract VAT?
VAT applies where: (1) the seller has opted to tax the property; (2) the property is a new commercial building (under 3 years old); (3) certain investment properties. Where the buyer is VAT-registered and uses the property for taxable business activities, the 20% is fully recoverable - but not until HMRC processes the claim.
TOGC - Transfer of Going Concern
Where a commercial property is sold as a going concern (running business with tenants), a TOGC election may apply - meaning no VAT is charged. If TOGC applies, no VAT bridge is needed. Your solicitor and VAT adviser confirm TOGC eligibility before completion.
Bridge security - the purchased property
The commercial property being purchased is the natural security for the VAT bridge - the same asset that generated the VAT liability. This keeps the bridge at very low LTV (typically under 25% of property value), driving the competitive rates shown.
Monthly vs quarterly VAT returns
Businesses can opt for monthly VAT returns (rather than quarterly) to accelerate the HMRC refund. For large VAT reclaims on commercial property purchases, monthly VAT returns are worth considering - HMRC processes monthly returns on a similar timeline to quarterly but the reclaim arrives 2 months sooner. Your VAT adviser sets this up.
Worked cost example
Office purchase: £2,500,000 (VAT-elected). VAT: £500,000. Completion: 15 September 2026. Refund expected: January 2027.
VAT bridge: £500,000 at 0.55%/month. Term: 4 months. LTV: 20% on £2,500,000.
Cost: £11,092 interest + £5,000 fee (1%) + £3,000 legal = £19,092.
HMRC VAT refund: £500,000 repays bridge. Net bridge cost: £19,092.
Opportunity cost of using own cash for 4 months (at 8% p.a.): £13,333.
BRIDGE COST: £11,092 interest (0.55%/month × 4 months on £500,000) + £5,000 fee + £3,000 legal = £19,092.
HMRC VAT REFUND: £500,000 repays bridge in full. Net bridge cost to business: £19,092.
NET SAVING vs opportunity cost of own cash (8% p.a. for 4 months): £13,333. Bridge costs £5,759 more - but preserves £500,000 working capital.
NET SAVING vs HMRC late payment (14-day deadline missed): HMRC interest at 7.75% for 4 months = £13,014 + £100 penalty = £13,114.
Bridge (£19,092) costs £5,978 more than HMRC late payment - but eliminates all compliance risk and enforcement.
CONCLUSION: Commercial property VAT bridging is primarily a working capital preservation tool. The HMRC refund repays the bridge in full - the net cost is the interest and fees to access £500,000 for 4 months.
Rate context and outlook
Commercial property VAT bridging is one of the most cost-effective uses of bridging finance - the exit (HMRC VAT refund) is certain, the security is the property itself, and the LTV is very low. DBF has arranged commercial property VAT bridges from £50,000 to £5m+ across all commercial property types including offices, industrial, retail, and mixed-use.
Get a personalised rate comparison for your case
Independent, whole-of-market advice across 130+ specialist lenders. Doulton Money Ltd is authorised and regulated by the Financial Conduct Authority, FRN 814533.
Frequently asked questions
How do I reclaim the VAT after purchasing?
Include the VAT paid on the commercial property purchase as input VAT on your next VAT return. For large amounts, HMRC may request supporting documentation - the purchase contract, VAT invoice from seller, evidence of the seller's VAT registration and opt to tax. The refund is typically processed within 30-90 days of the VAT return being filed. Filing monthly returns (rather than quarterly) accelerates the refund by approximately 2 months.
Can I arrange the VAT bridge before exchange?
An AIP for the VAT bridge can be arranged before exchange - you know the purchase price and VAT element in advance. A formal offer issues shortly before or at completion. Having the AIP in advance means no rush at completion - the process can be completed efficiently without time pressure.
What if HMRC delays the VAT refund beyond 4 months?
The bridge term can be extended. We recommend a 6-month term even when the refund is expected in 4 months - the buffer is cost-effective given that extension costs are modest. If HMRC subjects the claim to a compliance check, the extension may be several months.
Is a TOGC election beneficial?
Under TOGC (Transfer of Going Concern), no VAT is charged - avoiding the need for a VAT bridge entirely. However, TOGC conditions are specific and cannot be assumed. Your solicitor and VAT adviser confirm eligibility before completion. Where TOGC does not apply, the VAT bridge is the standard solution.
Does SDLT apply on top of the VAT?
SDLT is calculated on the VAT-inclusive purchase price for commercial properties. On a £1,000,000 commercial property (£1,200,000 including VAT), SDLT is charged on £1,200,000 - the total consideration including VAT. This increases the SDLT liability compared to a VAT-free purchase. Factor this into the total purchase budget.
Explore tax payment finance
Get a quote for your situation
Send us the figures and the deadline. We will tell you what is achievable, what it costs, and how quickly it can complete, usually within the working day.