Insurance Premium Tax (IPT) will increase from 6 per cent to 9.5 per cent on the 1st November 2015
Insurance Premium Tax (IPT) is to be increased significantly in November 2015, affecting millions of consumers who buy insurance in the UK. The tax which was created in 1994 started off at a reasonable 2.5 per cent, but successive governments has seen the tax as an easy way of generating more income for the treasury.
The new 9.5 per cent rate is expected to fill the treasury coffers by an expected £8.1 billion by 2021, according to the Association of British of British Insurers (ABI). The rise in the tax will have an impact on millions of consumers who take out car, home or pet insurance. Also, consumers who insure themselves for private medical insurance (PMI) will also be hit by the increase.
It is expected that 20.6 million car insurance policies, 20 million home insurance policies, 3 million pet and PMI policies will be hit. The increase in IPT will add around £13.00 to car insurance premiums and £10.00 on average to home and pet insurance premiums. Consumers with PMI policies will be hit the hardest with an average £40.00 increase to their policies.
This means that a family with two cars, a pet and medical insurance is likely to have to pay almost £100 a year more once the increase comes into effect next week.
IPT tax will be exempt from the following policies:
- Life Insurance
- Mortgage insurance
- Commercial ships and aircraft
- International railway rolling stock
- Lifeboats and lifeboat equipment
- Goods in international transit
James Dalton, Director of General Insurance Policy at the ABI, said: “Whether you are a homeowner, driver, own a pet or buy medical insurance, millions of people across the country face being hit in the pocket by this rise in Insurance Premium Tax. 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.”
The ABI also states that those who pay the highest insurance premiums – typically older and younger drivers as well as households in inner-cities or high flood-risk areas – who will be affected most by the increase.
There may also be an increase to any administration fees charged, for example for changing the name or address on a policy, as the tax is levied at this stage too.
How Insurance Premium Tax has increased over the past 20 years
- 1 October 1994, a single rate of 2.5% was charged
- 1 April 1997: increased to 4%
- 1 July 1999: increased to 5%
- 4 January 2011: increased to 6%
- 1 November 2015: increased to 9.5%