Following the Budget, we take a look at the basics of Insurance Premium Tax, and what is changing as a result of yesterdays announcement.
What is it?
First introduced in 1994, Insurance Premium Tax (IPT) is a tax on general insurance premiums, including home insurance, car insurance and travel insurance.
There are two rate bands, the standard rate of 9.5pc, and a higher rate of 20pc which applies to travel insurance, appliance insurance and some car insurance. The tax does not apply to long term insurance, reinsurance and some commercial forms of insurance.
As the tax is added as a percentage on top of the premium itself, there is somewhat of a postcode lottery effect, as those living in areas where insurance costs more pay more in tax.
What has changed already?
A rise in the standard rate from 6pc to 9.5pc came into effect on November 1 2015, affecting tens of millions of insurance customers.
The move is expected to generate billions annually for the Treasury but was highly controversial, being labelled a “stealth tax” by some. Insurance premium costs had been on the way down, but new research by Consumer Intelligence this week revealed that car insurance premiums have increased 13pc over the past year.
Insurance premium tax hike will add £73 to your household bills
What happened to IPT in the Budget yesterday?
Although the last increase only took effect in November, George Osborne has announced that the standard rate of IPT will be increasing again by 0.5pc, bringing the rate up to 10pc. Pre-Budget there was speculation that a rise of up to 12.5pc was coming, so this is a smaller blow than might have been expected, but the increase will directly affect the cost of insurance.
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