Change, the technological certainty.

1024 683 Bloomsmith

With the election only 10 days away it is notable that institutions such as Goldman Sachs seem able to take a firm but conditional position on the British economy. 

 

Upgrading their positive forecasts, the notorious Bank is forecasting a rise of 2.4% in the second half of 2020. For 2021 growth of 2% is expected, up from 1.6%, and in 2022 their forecast is raised from 1.8% to 2.1%. But, and this is the important bit, if and only if Brexit clarity and fiscal stimulus can be delivered

 

Whilst nothing in life is certain (death, taxes excepting), one thing that has become apparent is that pontification and politicisation does nothing to allow a positive engagement with the future. Plans remain just that and foundations cannot be laid.

 

The BloomSmith House view is that only part of the stasis that we find ourselves in can be laid at the door of the gnarly process of mixing political drinks like referenda and Parliamentary Democracy. We see this as the symptom. The cause is grounded to a large part in technology and the effect that this is having on the way that “normal” lives are conducted, business is done and how Government maintains its power, control and influence. 

 

Whilst commentary of this type may seem to be far removed from the business of providing liquidity for taxation elements of capital intensive real estate projects, there is a universality to such technological change that means close attention and intelligent thought is required universally….. This close attention and intelligent thought needs to come from principal Directors on the buy and the sell side, as well as advisors.

 

Technology is changing/has changed traditional property classifications and usage. It has fundamentally changed valuations relatively between sectors and specifically within sectors, a prime (sic) example being retail.  Technology will, as Government struggles to maintain its power, control and influence, mean that bases of taxation, such as business rates, will change to accommodate the effects of change. It will also mean that sales or transaction based taxes such as VAT will become more important in Nation states such as the United Kingdom where capital flows increase across borders and the dues required at the point of transaction become more important sources of revenue for the Treasury. 

 

In the next article we will expand on sales taxes and how the transactional taxes may change and how the “sell side” can use this to their advantage.

Read other news here

BloomSmith complete their first Shari’ah compliant VAT bridge

1024 540 Bloomsmith

BloomSmith are pleased to announce the completion of their first Shari’ah compliant VAT loan. Working with clients who were completing a large transaction in South London, it was requested that the documentation and form used respect Islamic financial principals.

With the assistance of BloomSmith’s legal team at Fladgate, who are experienced in Shari’ah compliant products (see link: Fladgate), the real estate VAT lenders were pleased to provide the required funds quickly.

“Having created the VAT bridging market four years ago, in which we remain unique in that we lend without a charge on the property, to be able to provide the first Shari’ah compliant product in the market is pleasing for us and, we hope, our client” said Nigel Smith, Founder and Director of BloomSmith.

“We have a team with a strong reputation and it is easy to forget why until we are asked to do something out of the normal course of our business to date. It is only then that you realise why that reputation exists.” says Nigel, adding “Hopefully providing the VAT on our Shari’ah platform will now become part of our normal course of business for UK and overseas investors alike.”

“Flexibility, innovation and practicality is something that becomes far easier as a principal lender, using internal funds.”

Elected and Election

1024 683 Bloomsmith

MP’s have finally managed to make a decision of note and not one of detail.

In the first December election since 1923, when, interestingly, Labour led by Ramsay McDonald lost in terms of the number of seats won but went on to form the first ever Labour government), the voting public will put in place Members of Parliament and a new Government.

With the Fixed-Term Parliament Act the likelihood is that the new government will serve for a busy, important and transformative 5 years.

Election in the case of a commercial property is a 20 year commitment and is essentially irrevocable. Not very democratic you may say, but nevertheless something that needs to be dealt with, and more notably today than historically, at the point of sale.

At the point of sale, the sale price of VAT elected properties is determined by many factors including the physical intrinsics, market outlook and availability of leverage. The short term funding requirement for 20% of VAT on a transaction necessarily has its effect on value as well as sale price.

Bloomsmith see the outcome of elections generally as outcomes that just need to be dealt with.

As a principal lender of VAT, we have an answer to the 20% VAT payable on commercial property election with our ability to provide 100% of the VAT required at the point of purchase, within 3 days and without a charge being taken on the property. We may not however be able to provide such certainty around an answer to the December General Election…..

Sovereignty and Opportunity

1024 683 Bloomsmith

As BREXIT continues to weigh heavily on an increasingly one dimensional media narrative and the health of the UK Economy in general, Real Estate developers and investors are seeking ways to take advantage of a subdued market and the consequent purchasing opportunities.

 

In previous periods of economic uncertainty there have always been those who have withdrawn from the market and those who have seen the circumstance as time to  buy.

 

Access to funding is critical to capitalising on opportunity and increasingly companies such as the providers of VAT bridging, Bloomsmith are being called on to assist with facilitating transactions that would previously have been passed over.

 

Providing an extra 20% of the equity required to complete an VAT Elected property purchase without the need to take a charge on the property is increasingly being seen as the key to transactions rather than just a short term cash provision.

VAT Bridging Explained | Bridging On Commerical Property

650 418 Bloomsmith

VAT Bridging Explained

We hope this page will help you better understand Bloomsmith’s facilities and VAT Bridging In General

What is a Bloomsmith VAT loan?

A Bloomsmith VAT loan allows you to raise short term finance to cover the VAT element due on the purchase of you or your client’s commercial property. This ensures that the deal completes and the Bloomsmith structure ensures that your equity is safe and HMRC repay your loan for you.

When is VAT chargeable on a commercial property?

Where a property has been elected for VAT and the owner has registered his interest in that property and has registered for VAT themselves.
This is referred to as an “opted in” commercial property and the vendor is able to issue a VAT qualifying invoice for the purchase of the property to the purchaser.

Can you reclaim the VAT on commercial property transactions from HMRC?

You can reclaim the VAT but first it must be paid.
The reclaim takes place if HMRC approve transaction once the reclaim is submitted following the purchase. Bloomsmith manage this process for you as part of their service.

Reclaims typically take between 45 to 120 days from the date of payment (purchase) and recovery. This effects cash flow and potential opportunity. A Bloomsmith VAT loan enables you to focus on the next transaction rather than allocating cash to HMRC.

What amount can you borrow under a VAT bridging loan?

We do not have a minimum loan, we can facilitate up to £20 million plus.

Is it possible/normal to borrow 100% of the VAT charge?

Yes.

Do Bloomsmith take security on your property?

No.

What security is required?

None we lend on process.
We just require you to form a new SPV outside of a group structure and verification of the legitimacy of the seller charging VAT. The loan is secured on recovery from HMRC rather than on available equity in the property.

What is a VAT Bridging Loan?

A VAT bridging loan is a short-term loan that covers the VAT on a property/ land/ development for a short period of time, that is reclaimable from HMRC. BloomSmith facilitates that reclaim, and this is generally within 60-90 days.

What is a VAT Bridging Loan?

A VAT bridging loan is a short-term loan that covers the VAT on a property/ land/ development for a short period of time, that is reclaimable from HMRC. BloomSmith facilitates that reclaim, and this is generally within 60-90 days.

Is this normal in the market?

Other lenders require a second charge on the property as security for the loan. Bloomsmith do not require this as in our experience the better borrowers do not like to subsume their equity.

Reclaiming the VAT from HMRC

Bloomsmith provide a fully managed option which means that they will oversee the recovery of the VAT direct from HMRC and dealing with all enquiries.
Being experienced in dealing with the VAT recovery process, this can speed up recovery, reducing interest payment costs by reducing the term of the loan.

What are the advantages of Bloomsmith VAT provision?

It’s fast.
There is a simple predictable process.
Your equity remains free for other deals.
You’re given support to manage VAT purchase risk and you HMRC reclaim.

Get in touch

To hear more about our processes or enquire further, you can call us on 020 3488 3411 or fill out our enquiry form
Neil Petty // Director // 07970740360
Nigel Smith // Director // 07770914594

Principals and Professionals

811 624 Bloomsmith

Bloomsmith like to work with Principals and Professionals.

We like to work with Principals because it’s their money, their risk, their hard work. They care. It’s good to work with people who care. It makes you feel as if you are doing something worthwhile. We use our money so we understand.

 

We like to work with Professionals because they have a sense of duty and responsibility to their client. Their advice is their reputation. Our Professionals are our reputation.

 

Bloomsmith like to form relationships based on trust with people who understand the value of money, where the risk sits in a transaction and the worth of an assured provision of funds for a completion.

 

If you agree, one of the Directors of Bloomsmith would like to hear from you to discuss how we can work together.

 

100% VAT for Real Estate transactions. No Charge on the property leaving the equity in the ascendency. 3-day completions.

 

We think you will like working with us.

 

VAT AND THE UPSIDE OF BREXIT

1024 768 Bloomsmith

Due to changing priorities for investors, commercial property is becoming increasingly attractive to experienced and inexperienced property investors alike. This presents, however, some areas where new skills and understanding may be required.

As a lender of VAT on commercial properties Bloomsmith operate in one of the more fundamental areas where understanding is required.

Residential landlords have been challenged hard as of late. This can be attributed to the shifting tax landscape and changes in regulation for lenders. The results, market contraction and reduction in landlord activity in the residential arena have resulted in a shift of attention to commercial investment, where yields and the taxation environment can often be more attractive.

Faced with a wonderfully(?) uncertain political outlook there are reasons to be positive for the long-term investor. Anecdotal evidence and some specific research demonstrates that investors operating in the prime commercial space are postponing activity until there is a definitive Brexit outcome. An “unknown unknown” should then be replaced by a “known unknown” which can allow a market strength to develop out of a sense of relief.

Capital growth in the residential sector has for a long time given investors an excuse for not being too definitive or critical in terms of their yield calculations. As this growth has dissipated, opportunities from which to derive yield have become both “de rigour” and necessary.

Lenders in the commercial property market want to see maturity and a degree of sophistication and as such we hope that some of our observations prove worthy collateral. They are borne out of experience in both commercial development and investment as well as from the funding side of the fence complete with all learning experiences….

The UK commercial property sector is a highly developed international market with an estimated size of nearly £900 billion (2016 the Investment Property Forum estimated its size at £883 billion). Returns can be strong (out-performing the FTSE 100 between 2000 and 2018) and average yields of c 5% remain, save in the obvious sectors such as retail where yields are suffering from the added risk of increasing costs (e.g. business rates) and the advancement of e-commerce and online sales.

The primary sectors in the commercial property space include;
• retail as referred to above,
• commercial office space, and
• industrial property.

Of these, our House view is that industrial premises will form the main focus of investor activity and in particular in the west of the country and surrounding ports in particular. This will be due to a re-establishing of traditional trading patterns that have been artificially re-orientated east due to the “Rotterdam Effect” and EU membership. Other property sectors will also benefit indirectly from this rebalancing.

Commercial property is not highly correlated with other asset classes such as equities or bonds. This allows investors to offset broader stock market volatility on their portfolios, notwithstanding larger macroeconomic events.

With stamp duty capped at 5% over £250,000, (where SDLT can reach 12% on residential properties over £1.5m) and loan interest relief still available against commercial rental income, the profit and loss statement of a commercial investment now works very differently to a residential buy to let.

There are many wise words to be read on the merits of locations and sectors in the commercial property market and some will be right, and some will be wrong. Our suggestion is to be familiar with the sector and the location and the more personal your familiarity the better your knowledge will be. Our other suggestion is that if the property is VAT elected you will need to pay this on completion. This can mean another 20% of equity required which on top of the normal 30% equity required under LTV parameters set by a senior lender, can be frustrating and potentially jeopardise a deal. £400,000 on a £2m purchase is a significant amount to find, on top of the £600,000 of equity even for a three-month VAT quarter.

Bloomsmith is able to fund this VAT without a charge on the property allowing you to save your equity for the next transaction or to reduce your LTV and therefore your senior cost of borrowing. Its all in the understanding…..and your team.

VAT on Commercial Properties: Understanding the Extra 20%

1024 682 Bloomsmith

 

Here, BloomSmith are dissecting one of the most commonly misunderstood aspects of commercial property purchase: VAT costs. This subject is often extremely confusing for vendors and prospective buyers alike, so it’s important to be able to refer to a reliable source if you’re in any doubt.

Our latest blog post aims to provide you with the most straightforward explanation of this complex subject so far. Throughout the next 5 paragraphs, we will explain the fundamentals of VAT on commercial properties, and how you might best account for it, utilising the 5 W’s.

 

Who?

Anyone involved in the purchase or leasing of a commercial property should understand VAT. It may not always be charged, but it’s important for everyone involved to have enough knowledge on the subject to make an informed decision about what to do. Whether you’re the vendor, unsure whether to charge, or the buyer, unsure whether to seek a loan, it’s essential that you’ve got a good understanding of the basics.

 

What?

VAT, put simply, is an additional 20% on costs. It accounts for additional services or occurrences at each stage of production.

 

Where?

Here, we’re talking exclusively about VAT costs on commercial properties. We’ve defined what makes a property commercial in a one of our previous posts, but it’s essentially any building used for business. As we’ve previously stated, it’s important that you have a basic understanding of VAT if you’re involved in the process.

 

When?

You don’t always have to pay VAT. Commercial property, when it’s being sold or leased, is actually often exempt. From the point of view of the buyer, this is generally preferable in the short-term.

From a vendor’s perspective, however, not charging for VAT can result in some significant losses; related costs, such as property refurbishments, can add up, and VAT could help you account for the impact of these additional fees.

 

Why?

While it’s not always the case, it is not uncommon for commercial property owners to charge for VAT. Generally, they will charge VAT to cover themselves for any significant, additional fees, such as major refurbishments. Unsurprisingly, this extra 20% can cause people to back out of commercial property purchases, simply because they can’t afford it.

It is at this stage of the process that BloomSmith comes in. We’ve got a huge amount of experience in helping people successfully purchase commercial properties, by providing them with bridging loans. To find out more about how we could help you, get in touch by giving us a call on 020 3488 3411.

An image of a commercial property taken from the ground up

Why a VAT Loan Facility Might Become Necessary

1024 682 Bloomsmith

BloomSmith specialise in VAT bridging loans, and have experience in dealing with clients from a wide range of backgrounds.

In most cases, our clients have come to us having decided that they require the additional help of a VAT loan facility. In a bid to make the phrase itself more digestible, and to add some much-needed context, we have listed below some of the scenarios in which this type of financial assistance might become necessary.

You have forgotten about VAT

One of the most common reasons people require the assistance of a VAT loan is simply that they had not realised they’d need to pay VAT. Often overlooked on commercial properties, VAT represents a large portion of the overall payment. With commercial property payments often reaching seven figures, 20% of that total amount is not easy to come by without significant notice. Often, therefore, a VAT loan facility or bridging loan represents the difference between being able and unable to complete the purchase successfully.

You are concerned about cash flow

With around 40% of the total property worth often required by mortgage banks, and then an additional 20% of VAT payable on completion, the total amount of money required to complete the purchase of a commercial property is extremely large.

Although VAT is often recoverable from HMRC, this process can take up to three or four months, causing serious damage to a business’ cash flow. In a bid to ease the financial strain of an already difficult time, many turn to VAT loan facilities.

You need help funding your dream commercial property purchase

We would always advise that anyone of the above mindset proceed with caution; VAT loans should never be used to buy a property you cannot afford. If, however, you are confident in your ability to monitor cash flow in the six months following your purchase, VAT bridging loans can actually open up the possibility of a more expensive commercial property.

Again, we should stress the importance of not viewing our loans as a means to buying an unrealistic property. Many people do find, though, that they are only a small percentage short of their dream premises. In that situation, we would advise that you speak to one of our advisers about the your individual situation. From there, we can work together to decide whether or not our VAT loan facility would be right for you.

Contact BloomSmith

If you have any remaining questions about whether you might benefit from a VAT loan facility, please get in touch with BloomSmith. You can reach us by emailing vat@bloomsmith.co.uk, or by calling 020 3488 3411.

A photo of a property in development building stages with wood frames

VAT Bridging Loan Given for the Profitable Development of a Former RAF Base

1024 768 Bloomsmith

In our ongoing work to provide VAT bridging loans to those purchasing large areas of land or property, we recently approved an application that would allow the redevelopment of 1.2 acres of land as part of a larger 600-acre redevelopment of a former RAF base in the Midlands.

The land in question had valid planning consent for a substantial residential site development. Despite this, though, it currently stood empty and was unoccupied, even though the planning permission had been granted in 2017. Everyone involved was therefore eager to revitalise this former RAF base into a usable development, beneficial to the surrounding area and contributing to the overall economic prosperity.

BloomSmith were approached for a loan of 20% of the full purchase value in order to cover the commercial VAT on the land, which amounted to over £200,000. The client had already secured financial backing for the purchase and development of the land so was seeking the final VAT loan to complete the transaction and move forward with the residential development that had been approved the previous December.

We were presented with a professionally considered portfolio for this demonstrably profitable development venture. Our client had also secured an initial construction report detailing the scale of the construction costings and plan, which meant that all parties could be fully aware of all that was going to be involved in the redevelopment. We agreed to provide the requested VAT bridging loan amount to our client, allowing the commercial land purchase to go ahead and the subsequent redevelopment to begin.

If you require VAT funding for your next commercial property or land purchase, don’t hesitate to contact BloomSmith to discuss what VAT bridging loan options we can provide you, to ensure your plans move forward smoothly. You can reach us on 020 3488 3411.