Chancellor Philip Hammond has announced in his Autumn Statement that Insurance Premium Tax (IPT) will rise to 12%. This is effective from June 2017.
It is the third time the tax has been increased in less than two years.
Insurance Premium Tax (IPT) was first introduced in 1994 at 2.5%. It is a tax on general insurance premiums – including car, home and pet insurance. It’s a tax on insurers, but the cost is passed on to consumers through the price of policies. The rate is set by HMRC.
The standard rate is currently 10%, which will increase to 12%. A higher rate of 20% applies to travel insurance, appliance insurance and some car insurance.
Why is Insurance Premium Tax (IPT) being increased?
Hammond said the changes outlined in the Autumn Statement were to “build an economy that works for everyone”.
“Insurance premium tax in this country is lower than many other European countries and half the rate of VAT. In order to raise revenue, it will rise from 10% currently to 12% next June.” – Chancellor Philip Hammond
The increase in IPT will affect all general insurance premiums, such as car, home and many forms of commercial or business insurance. Travel insurance policies will be unaffected as a higher rate of 20% already applies. Life insurance and mortgage protection are also exempted from the tax.
Who will be effected by the increase?
In a statement, the BIBA said: “Over the past 15 months, policyholders have already seen an increase of 66% in the Insurance Premium Tax (IPT) they pay – this further increase to 12% in this regressive tax is outrageous and is a tax on protection which will hit everyone and especially those ‘just about managing’.”
Director General of the Association of British Insurers Huw Evans said: “Yet another increase in Insurance Premium Tax is a hammer blow for the hard pressed. It will hit consumers and businesses alike, hurting those who buy business, motor, property, pet and health insurance. It marks a doubling of Insurance Premium Tax since last year and to claim a consultation on whiplash reforms which hasn’t even gone before Parliament yet will offset this just won’t cut it.”
It’s those who pay the highest insurance premiums – older and younger drivers as well as households in inner-cities or high flood-risk areas – who will be affected most by the increase.
With the new IPT rates coming in, it may be a good time to review your policies.
Whilst we can’t do anything about the tax, we are regularly identifying savings for our customers that are far greater than the tax increase.
Contact us for a no-obligation quote and review, we can help you ensure you’re correctly protected as well as identify areas for premium savings.
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