Earlier this year we told you about the increase in Insurance Premium Tax that was announced during the 2016 Budget in March.
Now, we know that was a long time ago and we hope you have slept by then, but we’re fast approaching the 1st October, which is when the newly increased 10% IPT comes into effect.
Don’t worry if you can’t remember the ins and outs and what this increase means for your insurance policies, we’re about to explain it all again…
Why does IPT exist?
Insurance premium tax was introduced in 1994 at a rate of 2.5% as a way to raise revenue from the Insurance Sector as Insurance is exempt from VAT – the most common form of tax. The new rate of 10% will be introduced on the 1st October 2016, and by February 2017 it will be applied to all qualifying policies, regardless of when the contract was arranged.
Our IPT rate is much lower than the 19% in other European countries, however we still have the fourth most costly car insurance premiums in the world after the US, Austria and Germany.
What impact will it have?
IPT will be applied to all policies which of course includes buildings and contents and even car insurance. It’s anticipated that the increase of 0.5% will equate roughly to an extra £2 on motor insurance and £1 on building and contents. This is less of a hike than that of last November when IPT was increased from 6 to 9.5%.
Travel insurance remains unaffected, as it falls into a higher rate of IPT which was first introduced at 17.7%. This has since increased to 20%.
Because the tax is a percentage of the premium, location and circumstances of the policyholder could have a significant impact on how much they would have to pay in IPT.
Why is it being increased?
The extra funds generated by the increase are to be ring-fenced for flood defences and resilience strategies. Last year’s increase was anticipated to generate an extra £1.5 billion, while the extra 0.5% due in October should further boost this figure by 700million.
If you would like to know more about how IPT might affect you specifically, please call us on 01564 730 900 or email enquiries@edwardsinsurance.co.uk.