What is Insurance Premium Tax (IPT)?
IPT is tax on insurance products purchased by individuals and businesses within the UK, which was introduced by the government.
Changes to come
During the March Budget of 2016, it was announced that insurance Premium Tax (IPT) was due to be increase by 0.5%, taking it to 10%. Currently IPT stands at 9.5%, which was increased by 3.5% already, just last year alone from 6%.
This increase will affect all business and households who purchase insurance which is subject to IPT. Some types of insurance do remain unaltered, such as policy types like Engineering Inspection (which is charged at the higher 20% rate) and Motability Scheme policy holders (which is exempt from IPT) etc.
The objective of the increase by the government, is to collect revenue to help fund flood defences and resilience.
The planned IPT increase is due to start taking effect from the 1st of October. The current legislation governing this hot topic is the Finance Act 1994, Part III. The other parts of the act (namely I & II) are relevant to types of insurance products which are subject to higher rate IPT, and to products which are exempt from IPT.
Impacts of the planned increase
The Government forecasts a small rise Consumer Price Indices inflation, but no impact on products exempt from IPT or products subject to the higher rate of IPT.
The IPT increase is expected to have an effect on business, individuals and households purchasing insurance products not exempt from IPT, if the insurers choose to pass on the IPT increase.
The insurers are also expected to incur one-off costs of implementing and updating their systems with the planned increase as well. So costs will be
incurred by nearly all parties and not just the consumers, whether commercial or personal. But the real impact will be known to the markets on the 1st of October 2016 and onwards.
For more information, please visit Gov.uk website and search for Insurance Premium Tax
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