The Insurance Premium Tax Hike
On 8th July 2015, George Osborne, Chancellor of the Exchequer, delivered his Summer Budget 2015 to Parliament (the first budget since the General Election), which saw a controversial and unexpected measure whereby Insurance Premium Tax (IPT) was increased from 6% to 9.5% [on all premiums that are either not exempt from IPT or do not already attract a higher rate].
The 58% increase was considered a necessity by the government, however it was met with the feeling of a surprise ‘stealth’ tax by Insurers and certain industry insiders.
With a Conservative majority, Osborne has the opportunity to enact policies that he believes ‘puts security first’ and provides a ‘Budget for working people’. The plain English version of this is that the overall cost of Insurance is going up from 1st November 2015 and this is very likely to affect everyone, including your business or employer.
For example:
Annual premium payable on or before 31/10/2015: £1,000
IPT chargeable 6%: £60
Total: £1060
Annual premium payable on or after 01/11/2015: £1,000
IPT chargeable 6%: £95
Total: £1095
Total IPT increase 58%
Total overall increase 3.3%
The government estimates the hike will generate an extra £1.75 billion per year. This annual revenue boost will come from all households and businesses that pay the IPT on insurance policies. However, there are several types of policies that are exempt from IPT, including the following:
- Most long-term insurance policies
- Insurance for commercial ships and aircraft
- Insurance for commercial goods in international transit
- Premiums for risks located outside the United Kingdom
- Reinsurance
Osborne is confident that the IPT hike will benefit the UK economy, arguing that it brings the UK’s IPT in line with other countries. At 9.5%, the United Kingdom has one of the lowest IPT rates in Europe —much lower than Germany’s 19% IPT and Italy’s 21.5% IPT. With competitive rates and a robust, diversified insurance industry, the government hopes to continue attracting new international business due to its relatively low IPT.
The government is confident that there will only be negligible impacts to both the public and private sectors. These impacts include one-off costs for insurers to update their systems to include the new tax rate as well as an annual increase of about £35 for the average two-car family. However, according to some industry experts, the effects may be more far reaching and damaging than initially expected. Just a slight rise in premiums could make vital cover too expensive, resulting in more uninsured drivers and businesses. One of the most potentially severe outcomes involves private medical premiums, which could increase by between 7.5 and 15.5 per cent. This may cause some families and businesses to forego private medical cover, placing increased pressure on the already burdened NHS.
Moving forward
We are committed to providing you with cost effective cover, which suits your needs. We will endeavour to find ways to soften the impact of the IPT increase, however, if you would like to consider increased excesses or other ways to reduce the cost of your cover please contact us.