VAT bridging finance
What Does a VAT Bridging Loan Cost?
PropertyVAT Team · Updated · 3 min read
VAT bridging is priced differently from most property finance, and the difference confuses people. A rate that looks alarming as an annual figure is usually modest in pounds, because the loan exists for weeks rather than years.
How the pricing works
Three components, and you need all three to compare quotes:
| Component | Typical form | What to ask |
|---|---|---|
| Interest | A daily or monthly rate | Is it charged on the day, retained, or rolled? |
| Arrangement fee | A percentage of the facility | Is it deducted from the advance? |
| Exit fee | Fixed or percentage, sometimes none | Is there a minimum term? |
What a daily rate means in pounds
Rates from around 0.03% per day are available on strong cases. On £300,000 of VAT:
- 0.03% of £300,000 = £90 per day
- A 30-day reclaim cycle = roughly £2,700
- A 60-day cycle = roughly £5,400
- A 90-day cycle = roughly £8,100
Add the arrangement fee to get the total. The figure that matters is the all-in cost over the days you actually borrow, not the annualised equivalent — which looks dramatic and tells you nothing useful about a six-week facility.
What drives your rate
- Strength of the reclaim. A VAT-registered entity with a clean filing history prices better than a newly formed SPV filing its first return.
- Security. A facility secured against the property may price differently from one secured on the HMRC recovery alone.
- Expected term. How close you are to your VAT quarter end directly affects how long the facility runs.
- Size. Larger facilities often attract finer pricing.
- Speed. A case packaged properly, with the VAT position and registration already settled, is a cheaper case to underwrite.
The comparison that actually matters
The real question is not "is this cheap?" but "what else would that money be doing?"
On £300,000 of VAT over 60 days:
| Option | Direct cost | What you give up |
|---|---|---|
| Fund it yourself | £0 interest | £300,000 unavailable for two months |
| VAT bridge | Roughly £5,400 plus fees | Nothing — capital stays deployed |
If that £300,000 would otherwise sit idle, self-funding is cheaper and you should self-fund. If it is a deposit on the next acquisition, working capital for your business, or the difference between completing and not completing, the arithmetic reverses quickly.
The costs people forget
- A missed VAT quarter. Completing just after your quarter end can add up to three months to the reclaim — and therefore to the interest bill. This is often worth more than any rate negotiation.
- An HMRC verification check. Large or first-time claims attract scrutiny. Build term headroom in rather than paying to extend.
- Stamp duty on the VAT. Not a funding cost, but a real one: SDLT is calculated on the VAT-inclusive price, and that extra stamp duty is never recoverable.
Questions to ask before you sign
- What is the all-in cost over my realistic term, in pounds?
- Is interest retained up front or paid on redemption?
- Is there a minimum term, and what happens if I redeem early?
- What happens if HMRC takes longer than expected?
- Is the facility secured on the property, or on the HMRC recovery?
- Are there any fees not in the headline quote?
A lender who answers all six in writing is giving you a comparable quote. One who leads with a daily rate and nothing else is not.
This guide is general information, not financial advice. Rates and fees vary by case and lender; obtain a written quote for your transaction.
Frequently asked questions
- Why is VAT bridging quoted as a daily rate?
- Because the term is short and defined by your VAT reclaim cycle rather than a fixed period. A daily rate means you pay for the days you actually use, rather than a full month or a full year.
- What fees should I ask about beyond the interest?
- Ask about the arrangement fee, any exit or redemption fee, legal costs, and whether interest is retained up front or paid on redemption. The headline rate alone does not tell you the total cost.
- Does the cost change if HMRC is slow?
- Usually yes, because you are paying for time. Ask what happens if the reclaim runs past the expected term, whether the facility extends automatically, and at what rate.
- Is VAT bridging interest tax deductible?
- Interest on borrowing for business purposes is often deductible, but treatment depends on the structure and the entity. Confirm the position with your accountant rather than assuming it.
Related guides
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