Insurance Premium Tax
What is Insurance Premium Tax?
Insurance premiums are subject to a Government tax called the Insurance Premium Tax or IPT. InJune 2017, IPT will rise from 10% to 12%.
Announced in last years’ Autumn Statement, this latest rise hit the headlines because it will represent the third increase in IPT in less than two years.
IPT has risen steadily since its introduction at 4% in 1997 but has recently increased very quickly, effectively doubling since 2015.
What will the result be?
Taking effect from the 1st June 2017, you will notice all general insurance premiums being charged at a slightly higher rate.
The British Insurance Brokers’ Association (BIBA) have confirmed that extra £700m funds which will be raised from June 2017’s IPT increase will go towards extra flood defences.
However, some experts are worried that the rate will continue rising until it is in line with VAT, which is currently 20%, although this is not confirmed.
When will my premium go up?
It all depends on your renewal date, or when you are planning to take out a new insurance policy.
Policies arranged after 1st June
Unlike previous increases, there will be no concessionary period. This means new policies and renewals arranged after the 1st June, for which the period of cover starts on or after that date, will automatically come with the higher 12% rate.
Policies arranged before 1st June
The old rate will continue to apply to policies arranged or renewed before the 1st June, up to a backstop date of 1st June 2018. After this date, all policies will be charged at the new rate.
What happens if I make a policy adjustment?
Any mid-term adjustments or cancellations will also follow the same rate as that which the policy was arranged with.
If your premium is reduced as a result of the adjustment, you’ll be owed a refund and IPT will be credited at the rate applied to the original premium.
If an adjustment results in your policy increasing, you’ll be charged the additional IPT at the appropriate rate – for example, 10% if the term start date is before 1 June 2017, additional cover starts before 1 June 2018 and is processed before 31 May 2018. It will be charged at 12% if the term start date is on or after 1 June 2017.
This may be pertinent to businesses which have seen a change in circumstances, such as an expansion or relocation.
For more information on when your premiums will increase, and by how much, talk to your Rollinson Smith Insurance Brokers adviser who will be happy to help.