HMRC see lenders as agents in relation to the costs of the sale of repossessed property.
Consequently, the lender can treat the selling costs as supplies made by him and claim a bad debt refund where appropriate. Further details are in Business Brief 24/1994 (8 December 1994), which is reproduced below.
‘SALE OF PROPERTY UNDER A POWER OF SALE – RECOVERY OF VAT ON COSTS INCURRED BY MORTGAGE LENDERS
Customs and Excise have reconsidered the VAT treatment of costs incurred by mortgage lenders when selling property to realise their security in circumstances where a borrower has defaulted on a loan.