Can a landlord charge VAT on insurance?

There are many different types of tax out there, and some are more important than others when you’re a landlord. Once you’ve taken out your landlord insurance policy, you may be wondering whether you can charge VAT on insurance. We’ll fill you in on everything you need to know about landlord insurance and the associated tax. 

Is there VAT on landlord insurance?

No, VAT is not applied to landlord insurance. However, landlord insurance premiums are subject to Insurance Premium Tax (IPT).

What is Insurance Premium Tax?

Insurance Premium Tax (IPT) is included in a landlord’s insurance premium. It is charged by insurers at a rate of 12%. Once your insurance provider has collected your premium, IPT is paid directly to the government. 

Can Insurance Premium Tax be recovered?

Whilst VAT can be recovered, IPT cannot. As a result, if landlords decide to pass on the cost of their insurance to the tenant as an individual cost, they shouldn’t be applying VAT to this. IPT will already be included within the landlord insurance premium, and so no extra charges are applicable.

How has Insurance Premium Tax increased over the years?

When IPT was introduced in 1994, the rate was only 2.4%. After many revisions over the years, the rate now stands at 12%. Despite this hike in IPT, the UK’s rate is lower than many other European countries. Experts advise that IPT could continue to rise in the future and since the last change was made in 2017, it’s definitely something to keep an eye on.

Is VAT charged on rental income?

VAT isn’t automatically charged on income from residential lettings. However, the picture can become complex so it’s important to seek the correct information for your individual circumstances. The majority of landlords are exempt from VAT but if you offer furnished holiday lettings, VAT should be on your radar.

If you run a holiday let business, it’s considered to be a trade. Much like hotels and B&Bs, furnished holiday lettings are subject to VAT. You only need to register for VAT if your holiday let business turns over £85,000. 

This figure may seem high to some small businesses and if you know that you won’t reach £85,000, then you don’t need to worry about registering for VAT from the outset. To put this in perspective, you would need an income of £1,635 per week to exceed the threshold. So this VAT charge wouldn’t affect you if you only let out one holiday property, but it’s something to consider as you start to build your property portfolio.

Whether you’re in the process of becoming a landlord or just wanted a refresh on the latest rules and regulations, we hope that you have found our advice helpful. With the rise of the staycation, you may be considering letting out holiday homes. Did you know that you can get special holiday home insurance at CIA Landlords? Get a quote with us today.