Are we alone in the universe? Who shot JFK? Is time travel possible? Why do flammable and inflammable mean exactly the same thing? And how come you never see the headline ‘Psychic Wins Lottery’?
These are just some of life’s great unanswered questions, and in the insurance world there is another. That question is: Should VAT be included when calculating the rebuild cost of a property?
It’s an important question. After all, the consequences of inaccurate sums insured can be significant for policyholders, brokers and insurers. Like most unanswered questions, it’s also a complicated one. In fact, the best answer to ‘Should VAT be included when calculating the rebuild cost of a property?’ is… well it depends!
Unfortunately, VAT on rebuild costs is one of those where either “yes you should” or “no you shouldn’t” simply does not apply. It depends entirely on situation and circumstances.
So for example, the answer is different when looking at a commercial property owned by a business which is VAT registered and where the business uses the entire property to generate taxable income, and a commercial property owned in a private capacity, such as by an individual who is not VAT registered.
What about a property owned by a ‘landlord’ who is VAT registered, but who has not ‘opted to tax’ a property for VAT purposes?
And then there is your standard owner-occupied residential property. VAT is not applied to a new build property or to a 100% rebuild of a property, as these are zero-rated. So surely the answer here must be “no need to include VAT.”
However, if the property is only partially destroyed, VAT would normally be charged on the rebuild, so is it really as simple as that? Also, if the residential property has outbuildings, swimming pools, etc, these can also be subject to VAT for rebuilding purposes.
See. We told you it was complicated!
But don’t worry. Here at RebuildCostASSESSMENT.com, we’ve put together a handy White Paper called ‘Should VAT be included in rebuild costs’, which explores these examples (and more) in further detail. It’s a great little document that will help you gain more understanding of VAT on rebuild costs, and hopefully help you to answer a few unanswered questions.
Download our White Paper: