VAT bridging finance

VAT Bridging Loan Exit Strategies

PropertyVAT Team · Updated 21 October 2026 · 3 min read

Every lender asks about the exit. On a VAT bridge the answer is unusually clean — an HMRC refund — which is precisely why the secondary exits get skipped.

They matter, because the primary exit can be late, short, or absent.

The primary exit

The facility is repaid from the VAT repayment arising on your return for the period in which you completed.

Three things determine whether it works smoothly:

1. Registration was in place at the time of the purchase
2. A valid VAT invoice exists to support the claim
3. The VAT is recoverable given your intended use

Get those right and the exit is close to mechanical. Get any wrong and you have a facility with no repayment source.

Exit risk one: delay

The most common problem, and the least serious.

Causes are predictable: completing just after a VAT quarter end, or HMRC verifying a large or first-time claim. Both add weeks or months.

What it costs: interest, for every additional day. On £500,000 at 0.03% per day, a two-month delay is around £9,000.

How to handle it: build term headroom at the outset. A facility agreed for three months that redeems in six weeks costs nothing extra on a daily-rate product. One agreed for six weeks that runs to four months costs an extension negotiated from a weak position.

Exit risk two: the refund is smaller than the facility

Less common, more serious, and often foreseeable.

If any of these apply, the facility must be sized against the recoverable amount, with the balance funded as a genuine cost.

A facility sized against the full VAT on a partly exempt business has a shortfall designed into it from day one.

Exit risk three: the reclaim fails

The serious case. Usually one of:

• The buying entity was not VAT registered at the time of purchase
• No valid VAT invoice can be obtained from the seller
• HMRC refuses the claim on recoverability grounds

The loan remains repayable regardless. The exit has gone and you need another one.

Secondary exits

Worth agreeing before you draw, not after a refund is held:

Refinance onto the senior facility. Where there is headroom and the senior lender will advance, the VAT can be absorbed into the main debt. Takes time and may need consent.

A term facility. Converting a short bridge into something longer while a dispute is resolved. More expensive, but it buys time.

Equity. Funding the balance from your own resources — the fallback nobody wants to use and most should plan for.

Sale or refinance of the asset. The standard bridging exit, available where the property supports it. Slow, and rarely the intention on a VAT facility.

The questions to ask your lender

1. What happens if the reclaim runs past the expected term?
2. Is there an automatic extension, and at what rate?
3. What if the refund is smaller than the facility?
4. What if HMRC opens an enquiry?
5. What would you expect as a secondary exit?

A lender who answers all five clearly is telling you how they will behave under stress. That is worth more than a few basis points on the rate.

Reducing the risk before you draw

• Register early — the single biggest determinant of whether an exit exists
• Obtain the VAT invoice on completion day
• Confirm recoverability given your intended use, in writing
• Check your VAT quarter end before fixing the completion date
• Size the term for the realistic case, not the fastest one

This guide is general information, not financial advice. Facility terms vary by lender — confirm the position for your transaction.