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On 1 October 2016 Insurance Premium Tax (IPT) will rise from 9.5% to 10%. This increase was announced at Budget 2016 with the objective of assisting the government’s fund flood defences and resilience.
The increase will have an impact on all insurers who provide non-exempt insurance cover for UK risks and insurance brokers and agents who act on behalf of them. It will also affect households and businesses who buy insurance which is not exempt from IPT and where the insurer chooses to pass on the rate increase to its customers.
The rise is likely to mean a further increase in the cost of car, mobile phone, pet, private healthcare, as well as business insurance products such as:
“The new standard rate of IPT will be due on insurance premiums treated by the legislation as received on or after 1 October 2016, except where insurers operate a special accounting scheme. From 1 February 2017, the new rate applies to all premiums, regardless of when the contract was entered into.”
HM Revenue & Customs
The government states that the rise is anticipated to have no administrative impact on businesses buying insurance products which are not exempt from IPT, but the purchase price of insurance may increase if insurers choose to pass on the rise.
Steve Cowman, Director at Nationwide Broker Services, said:
“It is estimated that there are approximately 1,000 UK insurers who will need to apply the new tax rate to their operating systems and who will incur charges for doing so. Insurers, brokers and agents are required to amend their contract information accordingly, ready for the change to come into effect on 1 October 2016.”
According to the Association of British Insurers, it is predicted that the average combined buildings and contents policy will increase by £1. This is following an IPT rise in November 2015, which increased average policies by over £10.
This is the second increase to IPT in less than nine months. The rate of IPT increased from 6% to 9.5% on 1 November 2015 and was announced in the 2015 Summer Budget. The Chancellor, George Osborne, explained the change as bringing the UK in line with the rest of Europe:
“I am going to increase the standard rate of Insurance Premium Tax by just half a percentage point – and commit all the extra money we raise to flood defence spending.
“That’s a £700 million boost to our resilience and flood defences.”
Not all insurance products will be affected by the rise in IPT. Life insurance and mortgage protection will remain unaffected. Travel insurance, which is already charged at a higher rate of 20%, will not change.
The industry had speculated prior to the 2016 Budget that IPT would increase to 12.5%. Are we to see further rises? We’ll keep you updated.
If you have any queries regarding Insurance Premium Tax, please contact us and we’ll do all we can to assist you.