PROPERTY OWNERS BULLETIN

Revocation of Option to Tax

Have you been charging VAT on your rents?  This would be because you elected to waive your exemption from VAT ie. (you've chosen 'Option to tax').

In this climate, 'Option to Tax' maybe restricting your cashflow.  You may no longer be redeveloping or reconstructing buildings, therefore there is little or no VAT to reclaim - but you are still having to charge VAT on your rentals and this makes you less competative and less profitable.

If you made this election for 'Option to Tax', it could not be altered for 20 years (unless of course you sold the building).  The first elections were allowed from 1st August 1989, therefore, from the 1st August 2009, property owners can apply to revoke the waiver of exemption on any of their buildings.  Given the pressure from tenants to reduce costs, this may come as welcome relief to you.

Why am I, your Insurance Broker, telling you this?

By reclaiming VAT on redevelopment or reconstruction of the building, this meant that there was no need to include VAT in the Sum Insured of a building.  If VAT is not now being charged on rent, there there is no right to reclaim VAT on rebuilding and reconstruction.

Most modern leases require the landlords insurance to cover FULL rebuilding, site clearance, professional fees, VAT and 3 years loss of rent, taking into account cover for the effects of inflation, escalation of costs, fees and rent reviews.

You can see that there is a duty on the part of the landlord to include the VAT in the building sum insured when VAT is not being charged on the rent.

What do I need to do?

Call my team immediately if you are not charging VAT on rentals and we need to review your Sums Insured for you.  It's a small procedure with a relatively small additional premium - a small price to pay to keep you compliant with your lease responsibilities.

Need more information on Property Owners policies? 

Click on www.neilwillies.co.uk/services/commercial-insurance  or call 0800 542 0672.