Budget 2016: insurance premium tax up 0.5%

Reporter, Accountancy Daily [2010-2021]

16 Mar 2016

Despite speculation that the tax on insurance premiums could be a target in his latest Budget, Chancellor George Osborne has announced that the hike will be lower than anticipated, at 0.5%

This brings IPT to 10% and the new standard rate will come into force for the majority of policies purchased from 1 October 2016.

This is the second rise in IPT in as many Budgets, as the rate increased from 6.5% to 9.5% in Budget 2015.

The only exception will be for those insurers who use a special accounting scheme rather than the cash receipt method. The exception operates to require the new standard rate to be applied by them only to premiums received on or after 1 February 2017, where the premium relates to risks covered by the terms of a contract entered into before 1 October 2016.

Legislation will be introduced in Finance Bill 2016 to amend section 51 of Finance Act 1994 to change the standard rate of IPT to 10%.

Speaking in the House of Commons, Osborne said the increase would be used to fund improvements to flood defences, which have been under pressure during recent periods of sustained bad weather.

The measure is set to raise around £900m for flood-hit communities according to the Red Book papers issued after the Budget.

Details of compliance issues for the insurance industry regarding the IPT rise are available here