The standard rate of IPT will go up by 2% to 12% from 1 June 2017, which means a £2bn windfall for the Exchequer by the end of the parliament. The measure is set to raise £680m in the first year of operation alone.

IPT is payable by all consumers on insurance policies from cars to holiday and contents insurance. The government describes it as a tax on insurers and claims that ‘any impact on premiums depends on insurers’ commercial decisions’.

‘This means the rate has doubled from 6% to 12% in two years and will add about £21 to the insurance costs of a family with two cars,’ said Bill Dodwell, head of tax policy at Deloitte. ‘That same family will benefit by about £40 from the freeze in fuel duty, in place of the RPI increase.’

Nick Warner, partner at Moore Stephens said: ‘This is a move sure to disappoint the insurance market; the Chancellor has announced yet another rise in the IPT rate, taking it from 6% to 12% (via 9.5% and 10%) in the space of two years.

‘The Chancellor’s assertion that “IPT is a tax on insurers” is a bit like saying that VAT is a tax on businesses, and that they will decide whether or not to pass it on to their customers or bear it themselves.

‘Both are simply tax collectors for the Chancellor (and insurers will be collecting an additional £2bn by 2017/18).

‘From the introduction of IPT in 1994, most insurers have always shown separately the IPT rate so that the customer will see this part of the cost.

‘Apart from suppressing demand for insurance, the transitional arrangements invariably create systems and accounting problems for insurers and brokers, thereby increasing the risks of inadvertent non-compliance.’

There are exemptions to IPT for certain sectors, including the following insurance contracts:

• re-insurance;
• life insurance, permanent health insurance and all other ‘long term’ insurance, except medical insurance;
• commercial aircraft and some associated liabilities;
• spacecraft and some associated liabilities;
• commercial ships and some associated liabilities;
• lifeboats and lifeboat equipment;
• foreign or international railway rolling stock and some associated liabilities;
• export finance;
• commercial goods in international transit;
• block insurance policies held by Motability which covers all disabled drivers who lease their cars and motor cycles through the scheme; and
• risks located outside the UK.

Details of IPT are available at HMRC Notice IPT1: insurance Premium Tax but they were last updated