Why do World Events Matter to BloomSmith and the UK Property Market?

Posted by BloomSmith on 16th March 2022 -

With all the talk of sanctions being imposed on Russia, Russian nationals and companies, the consequences of a specific event become truly international.

Why is this relevant to a funder of VAT on UK Real Estate transactions would be a fair question? Well…

Investors in UK real estate are global. It is estimated that overseas investors in the UK commercial property market accounted for approximately 50 per cent of the £44 billion total for the year.

If the commercial property being purchased was all vacant and VAT elected (…which it isn’t…but let’s imagine) that would be an additional £8.8bn of VAT needed to complete these purchases.

If that, hypothetical, £8.8bn of funding was required for the VAT, the investor obviously could provide this by divesting of investments or using available cash, changing the local currency into sterling and then transferring to the UK (once all of the source of funds and clearances were met), only for those funds to be returned once they have been reclaimed from HMRC three months later.

For the overseas investor, the crystallisation of the positions currently invested in their local market brings about a significant taxation consequence. The currency fluctuation that took place between the local currency and sterling during said three-month period could mean that after completion was delayed due to the added complications, the project began life significantly behind projections. If this added up to a 15% impact on this short-term capital requirement, that is £1.32bn of unnecessary cost.

Movements in foreign currencies can be extreme, mirroring extreme events (debt default, assassination of a foreign minister, war, pestilence) and those movements tend to be directionally similar across similar risk-rated currencies. Risk managers adjust their holdings, not just the country involved in the extreme events. All this is often complimented by a strengthening of sterling, if it is seen as relatively stable and strong, thus exacerbating the problem.

Beside all commercial variables discussed above, the imposition structural limitations, such as sanctions being imposed on foreign banks based in the UK, can also have an impact on UK/sterling-based liquidity, for their counterparties and of course customers.

BloomSmith provide overseas buyers with the funding for the VAT obligations on real estate (and large asset) transactions within the UK jurisdiction. This means that there are no FX vulnerable short-term obligations. Therefore, projections do not suffer from volatility and a need for risk premium and of course improved ROI.

Peace of mind most certainly has a value, as we are all increasingly aware in these turbulent times.

If you have a VAT funding enquiry, please contact BloomSmith’s Sales Director, Kate Ashton direct on 07825516161 or via email [email protected]

02034883411