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3 minute guide to VAT and sums insured

One of the things people seem to get most confused about when it comes to setting building sums insured is whether or not to include VAT.

To help, we’ve put together a short 3 minute explainer video, which should help clear up some of the key questions.

Please let us know what you think of this animated video by commenting down below or by emailing

Video Transcript

One thing that causes a lot of confusion with building sums insured is VAT. Should VAT be included or not?

VAT in the UK adds 20% on to the cost of things. But VAT does not apply to everything.

If you buy a new car, then VAT is payable. But if you buy a second-hand car from someone else, there is no VAT to pay.

VAT isn’t straightforward when it comes to property either. There’s is no VAT when buying a brand new home, for example. But if you add an extension to your house, then VAT has to be paid.

And this is why VAT on building sums insured can get confusing! If you were unfortunate enough to lose your home in a fire, then you would need to rebuild it from scratch. As this would be a new build, there wouldn’t be any VAT to pay so you could argue there is no need to insure for the rebuild cost plus VAT.

But, in most fires not all of the building is lost. In fact, almost all of the time buildings suffer what is known as a partial loss. The property isn’t rebuilt from scratch, but is simply repaired and here VAT will need to be paid.

So as a homeowner, if you want to be absolutely sure you’re fully protected in the event of a fire or other loss to your building, it would make sense to insure your building for the full cost to rebuild, including VAT.

Now things can get more complicated if you own a VAT registered business and claim back VAT on purchases. If your business property was partially destroyed in a fire then yes you would have to pay VAT on the repairs, but you could recover this from HMRC. So in theory your building sum insured would not need to include VAT.

However, if one floor of the property was used for business and the other was rented out without exercising the option to tax - making rents exempt from VAT - then you may find yourself in a situation where you can only recover some of the VAT on repair costs, while having to pay the other. In other words, you may need to insure for some of the VAT! We said it could get complicated!

At, our reports always give you figures with and without VAT. To feel confident about the amount you should be insuring your buildings for, we always recommend seeking professional advice from an accountant or directly from HMRC about VAT.

Think carefully about VAT and bear in mind, it is probably better to pay a little bit more for your buildings insurance, than later on having to find 20% of the cost to rebuild your property following an unfortunate event.

Arrange a fast low-cost professional assessment of how much your building should be insured for today.


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