With just days to go until Insurance Premium Tax (IPT) increases on 1st November, the Association of British Insurers (ABI) has set out the key facts about who will be affected by the change.
The standard rate of IPT – the tax paid each time an insurance policy is purchased in the UK – is rising from 6% to 9.5%.
This change will affect:
7.3 million car policies
4.7 million household policies
3 million pet policies
3 million private medical insurance policies
Any of the affected insurance policies with a start date after 31st October will have IPT charged at the new rate.
This is likely to add the following to premiums:
Nearly £13 to the average comprehensive motor insurance policy
More than £10 to the average combined building and contents cover.
More than £10 to average pet insurance
More than £40 to average private medical insurance
The Government exempts the following products from IPT:
Insurance for spacecraft
Commercial ships and aircraft
International railway rolling stock
Lifeboats and lifeboat equipment
Goods in international transit
Higher rate IPT remains unchanged at 20% and applies to:
Warranties for some mechanical and electrical goods
This means that a family with two cars, a pet and medical insurance is likely to have to pay almost £100 a year more once the increase comes into effect next weekend.
James Dalton, director of General Insurance Policy at the ABI, said: “Whether you are a homeowner, driver, own a pet or buy medical insurance, millions of people across the country face being hit in the pocket by this rise in Insurance Premium Tax.
“Whether it’s a legal requirement or you want to buy extra cover, insurance is a financial safety net, not a luxury.
“While insurance remains one of the most competitive industries in the UK, its affordability can’t be taken for granted.
“Further tax increases must be avoided if insurance is to remain accessible for all.”
According to the Treasury the IPT increase will bring in an additional £8.1bn for the Treasury by 2021*. This was the second largest revenue raiser in the Summer Budget.
Insurance Premium Tax was first introduced to the UK in 1994. The rise on 1st November is the 4th increase in the standard rate since its introduction.
*This is according to HMRC’s own figures summarising the impact of the move.