On 16th March 2016, the government announced that the Insurance Premium Tax (IPT) will be subject to another hike. Yet, it will only increase by 0.5 per cent and all the revenue generated from it will fund national flood defences and resilience.
This hike comes just after a previous 3.5 per cent increase on 1st November 2015—resulting in a tax increase of 66.6 per cent since then. While this hike is considerably smaller than the previous one, you should nevertheless familiarise yourself with the increase and its potential repercussions.
Understanding the Tax Hike
The standard IPT will be increased by 0.5 per cent—raising it from 9.5 per cent to 10 per cent—and will apply to insurance premiums starting on 1st October 2016. The government estimates that the hike will generate an extra £80 million in its first year and then an annual average of £205 million in subsequent years.
This annual revenue boost will come from all households and businesses that pay IPT on their insurance. However, there are several policies that are exempt from the IPT, including the following.
- Life insurance
- Insurance for commercial ships and aircraft
- Insurance for commercial goods in international transit
- Premiums for risks located outside the United Kingdom
- Export finance
Despite the rise in costs, the government is confident that there will only be negligible impacts to the public and private sectors. These include one-off costs for insurers to update their systems to include the new tax rate. (more…)