VAT Rise: A tax on Property Owners

On 4^th January 2011 the Government increased VAT by 2.5%. As well as hitting prices at the tills the tax rise is going to have a subtler impact on insurance for property owners.

Why does the VAT rise matter?

When a surveyor values your property he will normally advise you the cost of rebuilding the property excluding the VAT and inflation. It is therefore important to include these additions to reach the correct sum insured.

Those property owners who are not registered for VAT will need to add the tax not only the Rebuilding cost of the premises but to the professional fees and debris removal costs as well. As a result of the VAT increase it may be necessary to review your insurances to take the change into account.

If you are registered for VAT, then the change will not affect you, however most property owners are not registered and so will need to take the changes into account. It is best to check your VAT status if you are in any doubt.

How much difference will it make?

The increase in VAT will have a greater effect on larger properties because they cost more to rebuild to begin with.

For example, if you have a property that the surveyor advised would cost £10 million to rebuild then before the tax rise you would have needed to add 17.5% to get the value to insure it for, leaving you with a total of £11.75 million. Today you would need to add 20% tax so the total is £12 million which means your property could now be underinsured by £250,000.

What would happen if we are underinsured?

Different issuers are taking different approaches to underinsurance due to the tax rise. Potentially insurers could reduce any claims payments if they find that your property is underinsured.

What should we do?

If you are unsure about the correct value and the insurances for your property you should have the property professionally valued by a RICS Surveyor. For information about the valuation process please speak to the Centor Property Team

For further information please speak to you Centor Account Manager or contact Centor.