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.