Case Study: VAT On Commercial Property

“I managed to agree a deal in principle to purchase a very sought after property in London. At the time of the agreement I hadn’t realised the property was opted to tax meaning I had to pay an additional 20% VAT! Through Adsum I was able to provide the extra cost quickly and affordably. They took care of everything meaning I could focus on my other business needs.”

Back in December, Adsum were approached by a Commercial Finance Broker trying to find a solution for their client, on a commercial property transaction.  

The client, was an experienced property developer who was in the process of purchasing a site.  Finding good sites in the right location is tough and extremely competitive, meaning the Developer had to move fast to secure the opportunity, however this had created a problem not previously considered,  VAT on the purchase price.  

The property, located in west London, was previously a builders yard with various structures and hard standing in place.  It had now received planning permission for 213 apartments spread across 3 blocks and a mixture of one bed and two bed units, with 71 being classed as affordable. Because of the location, planning permission and ease of access, there was a tremendous amount of interest in the site and the client had to move fast to secure it, using a bridging lender to fund the senior debt.  The agreed purchase price was £2,600,000 and contracts were exchanged with a two week completion date set.  It was at this point the developer realised that the site had previously been opted to tax, meaning that VAT would be charged on the sale and an additional £520,000 would be required upon completion.  The senior debt provider had already reached their maximum Loan to Value which meant that they were not prepared to lend the client any further funds on the project.  With the completion date looming fast, and the traditional Christmas holidays about to happen, a solution had to be found or the developer would forfeit their deposit which was paid on exchange of contracts.  

The answer was a VAT loan with Adsum Finance, the tax receivables specialist lender.  Upon contact, outline details of the project and the developers’ financial position were taken, and an indicative term sheet was sent directly out to all parties within the hour using Adsum’s proprietary automated technology.  The terms were agreed and a deposit was paid by the client, therefore securing the terms offered and the vital funding that meant they could complete on this great and potentially profitable property development opportunity.   The client, and their professional advisors were then given log-in details to Adsum’s client Portal which allowed them to not only to instantly check the progress of their loan application, but also to electronically upload the required documents and sign where required, without having to print out a single document.  Knowing about the time-critical closing date, the team at Adsum worked tirelessly, liaising with client, the solicitors and the senior debt provider to ensure that the required amount of funds was transferred and held in the clients’ solicitor’s account, ready to satisfy the VAT amount on the completion day.   

The property completed on the correct day and the client, having kept liquidity and available capital, rather than tying it up with HMRC was able to immediately commence the site clearing and groundworks.  Commencing the project sooner means finishing it sooner and being able to start pre-selling units.  

However, the work for Adsum had not finished there.  Being VAT experts, part of the service received by the client was our team overseeing the managed recovery of the VAT from HMRC, giving the client one less thing to worry about as they started the project.  

Adsum is now the reliable VAT funder of choice for this client, and if you find yourself in a similar situation with VAT on a commercial property you are looking to purchase, we would be pleased to help you.

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