So, is your block insurance too high because of wrong application of vat?

In a fresh legal battle that highlights the continuing disputes over insurance costs within the property management sector, a leading chartered tax advisor has initiated a tenancy-agreements-made-easy'>planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>tribunal challenge against FirstPort, acting on behalf of freeholder E&J Estates.

The case against Firstport is about the insurance premium being too high and it is alleged that the capital value of the residential block is question is unjustly inflated because it includes Value Added Tax (VAT). Luckily for the leaseholder, her dad is a tax advisor's and he has taken on Firstport on her behalf.

Are residential new build blocks exempt from Vat?

Brian White, MBE, a respected chartered tax advisor, argues the block in question is. He has argued that the rebuild cost of the entire residential site, known as Hollin Bank Court in Blackburn, stands at 16.2 million according to assessments. However, he challenges that this figure is inaccurate and should be adjusted to 13.5 million. That’s because residential new builds are typically exempt from VAT.

What is the norm by which an residential block insurance reinstatement cost should be inflated for insuring purposes?

E&J Estates who Firstport act for seem to think the right answer is 30 percent, albeit even with today’s cost of living crisis that seems absurd. In a compelling witness statement submitted to the upcoming tenancy-agreements-made-easy'>planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>tribunal, scheduled for January 2024, Mr. White asserts, "They equally admit to inflating the Sum Insured by 30 per cent for 'standard inflation purposes,' and yet the policy is reset annually. This practice effectively adds a 30 per cent increment each year, a move designed to boost the kickback commissions to the freeholder and its agents."

It must be noted that in recent years, FirstPort, in collaboration with E&J Estates, has charged substantial premiums based on property valuations. They have charged 23.3 million in 2023, 23.1 million in 2022, 21.3 million in 2021, and 20.2 million in 2020.

Brian White says he wanted to address the issues directly with FirstPort and E&J Estates. However, his attempts to meet them and start a conversation on the subject met with resistance. Ultimately, no solutions emerged as the talks were shut down.

How much insurance commission does Firstport charge?

Whilst we don't know the answer to this. In the case of Hollin Bank Court, White alleges that every resident in the block has been overcharged by FirstPort. They impose charges and then threaten late payment fees to discourage leaseholders from challenging these premiums. According to Brian White, these challenges can disrupt the 18.22 per cent kickback commissions, as admitted by E&J Estates.

Mr. White's witness statement includes an email from E&J Estates that seemingly acknowledges the existence of these commissions. This document may substantiate his claims. Furthermore, Brian White provides a direct comparison by presenting an alternative insurance quote for the building, sourced from the broker Reich, which amounts to a premium thay would be considerably lower, some 11,789.

Not surprisingly, E&J Estates and FirstPort have refuted Mr. White's arguments, setting the stage for a paper hearing scheduled for January 2024. White contends that a hearing with witnesses is unnecessary, as all pertinent issues are well-documented in written form. Brian White, aged 59, is a prominent figure in Manchester's Jewish community. Beyond his professional role as a tax advisor, he serves as the chair of the charitable organisation Medequip kids. His contributions to the community were recognised with an MBE in 2021. As the tenancy-agreements-made-easy'>planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>tribunal date approaches, all eyes are on this legal battle, with Brian White spearheading the challenge against FirstPort's insurance practices, backed by freeholder E&J Estates.

The property management industry is watching the developments closely as the outcome could have far-reaching implications and impact how Freeholders handle insurance costs.

So, what are the rules for Vat on buildings insurance valuations?

The rules on Vat on buildings insurance valuations however are far from straightforward. Whether the declared values which is insured should include or exclude VAT depends upon a number of factors such as whether the property is commercial or residential, or a mixture, and whether you are VAT registered including your VAT recoverability status. We don't know enough about the facts of this case and the questions the tenancy-agreements-made-easy'>planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>Tribunal will have to ask, such as:

• Who is the insured?
• Are they vat registered?
• Is there any commercial part of the buildings?
• If there any commercial part of the buildings, could the insurance be split into separate policies so Var is not chargeable on the whole policy?
• How much of the rebuild cost relates to vat on fees and professional costs and demolition?
• How much of the vat costs relates to the buildings reinstatement cost (excluding professional costs and demolition)?

If we had these answers we could call the case. See diagram below.

Navigating VAT Issues in Insurance Valuations

The complexities surrounding VAT on insurance valuations for residential properties are significant. With factors such as VAT registration, the presence of commercial areas, and the specific nature of costs like professional fees and demolition involved, the outcome of this case could set important precedents. Understanding whether VAT should be included in property insurance valuations depends on various details that will need to be clarified in the tenancy-agreements-made-easy'>planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>tribunal. The legal battle over FirstPort's insurance premiums is an essential example of how VAT considerations could impact insurance practices in the property management sector.