The standard rate of IPT, which applies to most general insurance policies purchased in the UK, is going up to 10% from tomorrow (1st October 2016) after being increased by the previous Chancellor George Osborne in the Budget earlier this year.
This follows a previous rise from 6% to 9.5% which came into effect at the beginning of November last year, meaning the tax itself has risen by more than 66% in less than a year.
The new rate is likely to add the following additional cost to policies compared with this time 12 months ago (taking the impact of both increases into account):
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Over £52.50 to the average private medical insurance policy
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More than £16 to the average comprehensive motor insurance policy
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More than £12.50 to the average combined building and contents policy
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More than £12 to the average pet insurance policy
Considering only the latest 0.5% rise, that is likely to add the following additional cost to policies from tomorrow compared with the previous month:
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Around £6.50 to the average private medical insurance policy
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Around £2 to the average comprehensive motor insurance policy
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About £1.60 to the average combined building and contents policy
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Around £1.50 to the average pet insurance policy
Because Insurance Premium Tax is a tax the Government applies to individual policies, people who have the highest insurance costs – such as young drivers or those with on-going medical conditions – attract the highest amounts of tax.
Businesses are also affected when they buy cover for their premises, vehicles and to guard against issues such as business interruption.
ABI Director General Huw Evans said: “Insuring your home or business, your health and your possessions is the wise thing to do, taking responsibility for protecting yourself from some of the unexpected events in life. Insuring your car is a legal requirement.
“These two IPT increases are a raid on the responsible, taking advantage of those who already do the most to avoid becoming a burden on the state. The Government should be in no doubt that such steep increases in insurance premium tax may eat into the finances of both households and businesses. Any further hikes would be indefensible.”
The ABI publishes quarterly trackers measuring movements in motor and property premiums for domestic customers. The latest available trackers show:
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In Q2 2016, the average comprehensive motor insurance premium was £434, up 10% on the same quarter a year earlier.
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In Q2 2016, the average combined buildings and property policy was £309, down less than 1% on the same quarter a year earlier.
As well as IPT, premium prices are influenced by claims rates, competition in the market and the state of the wider economy.
Travel insurance has IPT paid at a higher rate of 20%, which is unchanged. Life insurance is exempt from IPT, as are a few other specific lines such as insurance for spacecraft and commercial ships and aircraft.
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