The effect of VAT on property valuations
I have written recently on the perils of underinsurance. One aspect here that can very easily catch the unwary is the VAT.
I had a client recently who had a fire at a property they own. Their insurance responded to this claim and appointed a loss adjuster. The adjuster queried the rebuilding sum insured stated on the policy and, comparing with an independent valuation, it was agreed that the total cost of the rebuild was adequate but, as my client was not VAT registered, the VAT needed to be added to this which left them 20% underinsured.
The problem here was that the clients business was VAT registered but as this property was owned in their individual name, the VAT registration did not apply to this.
It should always be considered, therefore, the VAT status of the policyholder. Registered companies being able to reclaim VAT means that insurers will not pay this aspect of a claim and, therefore, the sum insured should be amended accordingly. If the policyholder is not VAT registered then always ensure that VAT is added to the identified rebuild cost.
If you have any questions then please feel free to contact me.