Insurance Premium Tax - July/August 2015

Find out more about IPT and what these changes mean to both consumers and businesses across the sector.

The first budget of the new government included a surprise increase in the Insurance Premium Tax, from 6% to 9.5%. It is being brought in quite fast, and the insurance industry was not warned in advance. The change will apply to all new premiums from November, and all premiums whenever the contract was issued from March. With little time to prepare for this substantial rise, the industry will have to pass on the cost to consumers and businesses.

IPT was first introduced in 1994 at 2.5% and has risen steadily ever since, the last increase from 5% to 6% taking place in 2011. IPT is a general tax on insurance premiums and unlike VAT – which the Conservatives have pledged not to increase – cannot be claimed back by businesses. Many people may not even be aware that they are paying it. The government has justified the latest rise by pointing out that similar taxes on the continent are much higher, approaching similar levels to VAT, such as in Germany where IPT is charged at 19.5%.

The increase of more than 50% is the largest ever, though it is not the largest ever proposed. Back in 1999, when IPT was just 5%, there were concerns that the then Labour government intended to push it up as high as 12.5%! At the time, the Conservative party backed a national lobbying campaign against the tax. Measure still has to be passed into law, but it is unlikely to face a serious challenge from the opposition parties. The Association of British Insurers has expressed its disappointment at the measure and the British Insurance Broker’s Association has said it hopes that the government will review the rise and correct it in further budgets.