Following the Summer Budget on the 8th July 2015 there will be an increase in the rate of insurance premium tax (IPT) applied to insurance policies in the UK. As of 1st November 2015 many insurance policies will be subject to a 3.5% increase meaning the new rate will be 9.5%.
Insurance Premium Tax is a tax that is applied to insurance policies similar to the way Value Added Tax (VAT) is applicable to goods, however unlike VAT this cannot be claimed back. It affects the vast majority of policies sold in the UK including business insurance policies, private car and household insurance.
The rate increase will affect those policies affected by the standard rate of IPT. Those policies on the higher rate of IPT, like Travel Insurance will remain at the existing 20% rate.
Those policies that are accepted or renewed after 1st November 2015 will be subject to the new standard rate of 9.5% including adjustments from this period for these policies.
For policies which have been issued before 1st November 2015, but have an adjustment after this date during the policy period it is likely the following will occur:-
Refund of Premiums – the existing 6% tax rate will apply until renewal when the new rate of tax will then be in place
Additional Premiums – the new rate of tax at 9.5% will apply for changes after 1st November
Please note these are guidelines any may differ between insurers.
Following a study by the AA it is estimated that the tax hike could add an extra £18 to the typical cost of car insurance in the UK. However, at Sharrocks we check the insurance market each and every year which means our clients will be offered cheaper alternatives where they are available through us potentially offsetting any tax increase. For example in January this year 73% of our household buildings and contents policyholders were offered savings to those provided by their existing insurer.
There are several types of policy which are exempt from IPT and they include:-
- insurance for commercial ships and aircraft
- insurance for commercial goods in international transit
- premiums for risks located outside the UK
If you have any questions please contact us at Sharrocks.