The Insurance Premium Tax increase officially increased at the start of October, the Government announced back in March that the increase would happen later this year and was only set to rise by 0.5% – the revenue generated from the increase is to be used to fund national flood defences and resilience. Last year in November, we saw a larger increase of 3.5% which resulted in a tax increase of 66.6% since then.
Even though this is a smaller increase than last year it is important to understand the potential repercussions.
The standard IPT rate is now 10% and applied to all new insurance premiums starting from 1st October 2016. It is estimated that the increase will generate an extra £80 million in the first year and an annual average of £205 million in subsequent years – a staggering amount that can be reinvested to assist with flooding and resilience issues in the UK.
It is important to note that there are a number of policies that are exempt from IPT, these include:
- Life Insurance
- Commercial ship and aircraft insurance
- Commercial goods in international transit insurance
- Premiums for risks outside of the UK
- Export finance
It is hoped that there will only be a negligible impact to the public and private sectors, despite a rise in costs.
It is estimated that the average combined home and contents insurance policy will only increase by £1, and the average motor policy will increase by £2 per year. These slight increases are in addition to the £100 average household insurance bill from the previous increase. According to the Association of British Insurers (ABI)
The ABI also believe the IPT increase could cost UK businesses as much as £75 million. With these losses and a potential slowing of consumer spending due to higher insurance bills, there is concern that some businesses and motorists will forgo cover in order to save money. In a poll run by the AA in 2015 it found that 87% of motorists believe that IPT is unfair and the increases would encourage some drivers to drive without insurance.
What are the benefits?
The Governments IPT increase will hopefully, bring further benefit to the UK economy and brings us inline with other countries. Despite the increases we still have one of the lowest IPT rates in Europe. For example Germany’s IPT sits a 19% and Italy’s at 21.25%. The Government believes that our competitive IPT and robust insurance industry will continue to attract new international businesses.