Next week sees a 3.5% hike in the insurance premium tax (IPT), first announced in the Summer Budget, which is slated to bring in an additional £8.1bn for the Treasury by 2021 and will see the costs of household, car, pet and health insurance all rise
The move, which was the second largest revenue raiser announced by the Chancellor in his emergency post-election Budget, will see the basic IPT rate increase from 6% to 9.5%.
The new standard rate will be due on premiums treated by the legislation as received on or after 1 November 2015, except where insurers operate a special accounting scheme.
In that latter case, the new standard rate is only applied to premiums relating to risks covered by the terms of a contract entered into after 1 November 2015. From 1 March 2016, the new standard rate applies to all premiums, regardless of when the contract was entered into.
According to HMRC figures, the increase will bring in an additional £530m in tax revenue in 2015/16, and around £1.5bn annually for the years to 2020/21.
The Association of British Insurers (ABI) calculates the change will affect 7.3m car policies, 4.7m household policies, 3m pet policies, and 3m private medical insurance policies. It suggests average comprehensive motor insurance premium are likely to rise by nearly £13, home building and content cover and pet insurance by more than £10, while the new rate of tax will add over £40 to the average private medical insurance.
Other insurance products are exempt from IPT, including life insurance, mortgage insurance, insurance for spacecraft, commercial ships and aircraft, international railway rolling stock, lifeboats and lifeboat equipment, and goods in international transit.
The higher rate IPT, which applies to travel insurance and warranties for some mechanical and electrical goods, remains unchanged at 20%.
James Dalton, director of general insurance policy at the ABI, said: ‘Millions of people across the country face being hit in the pocket by this rise in IPT. Whether it’s a legal requirement or you want to buy extra cover, insurance is a financial safety net, not a luxury.
‘While insurance remains one of the most competitive industries in the UK, its affordability can’t be taken for granted. Further tax increases must be avoided if insurance is to remain accessible for all.’
IPT was originally introduced in 1994 and has seen four increases in the standard rate since it was first set at 2.5%.
HMRC’s notification of the increase to standard rate IPT is here
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