VAT on Rebuilding Sum Insured

Should VAT be included in rebuilding costs?

Some of the time you will need to include VAT in your declared building sum insured and other times you will have the option to exclude it.

If in doubt, you should just include it as you will not be penalised in a claim situation for being over insured.

Householders – New buildings and 100% rebuild of properties are currently VAT exempt. However when assessing the correct building sum insured to declare, you should consider a partial loss which means you should err on the side of caution and declare the sum insured + VAT. Also some elements of residential rebuilding costs are not VAT exempt.

Commercial – If you generate a rental income and charge VAT to your tenants, then you will usually be able to claim back your VAT and therefore could opt to exclude VAT from your building sum insured. Usually VAT is payable in advance and claimed back and therefore you should consider the potential cash flow impact should you opt to deal with the VAT element directly.

Partial situations – It could be that your building is rented out in part and the tenants are charged VAT but the other part of the building is occupied by you or no VAT is charged. In this case you could consider selecting a portion of the VAT to be insured. however we would advise to err on the side of caution and include it.

Every client’s needs are individual so if you have a query please get in touch and we will be glad to be of assistance.