Announced in the March 2016 Budget, the 0.5% increase in Insurance Premium Tax (IPT) comes into force on the 1st October 2016. This raises it to 10%. This increase is the second in a year, following a 3.5% increase last November from 6% to 9.5%.
What is Insurance Premium Tax (IPT)?
Insurance Premium Tax (IPT) was first introduced in 1994. It is a tax on general insurance premiums – including car, home and travel 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 9.5%, which will increase to 10%. A higher rate of 20% applies to travel insurance, appliance insurance and some car insurance.
IPT is being increased to protect home and businesses from flooding. It has been ring-fenced to fund new defences including in Leeds, York and Cumbria and for maintenance of existing defences.
It’s anticipated that the increase will generate an extra £700million.
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?
The British Insurance Broker’s Association (BIBA) estimates that over 20 million households with contents insurance, 19.6 million with motor insurance and 17 million with buildings insurance will be affected by the rise.
The Government’s own figures predict that the average comprehensive motor insurance policy will go up by £2 while the average combined building and contents policy will increase by £1. This is in addition to last November’s IPT increase, which added nearly £13 to the average comprehensive motor insurance policy and over £10 to the average combined building and contents policy, according to the ABI.
The ABI says 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.
Call 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.
Evans Insurance Brokers – Property Insurance Brokers in Essex.