9th November, 2021
Chancellor Rishi Sunak’s recent decision to leave the rate of Insurance Premium Tax (IPT) untouched is welcome news for customers and insurers alike.
On behalf of our customers, we’re really pleased that the government have decided to freeze the Insurance Premium Tax at 12% and 20% respectively in this year’s budget. It’s uplifting to know that, on the back of what has been a difficult couple of years, drivers, homeowners and travellers alike can breathe a sigh of relief as they won’t be hit with an additional tax increase this year.
The Insurance Premium Tax was introduced in 1994 as a tax on general insurance premiums. It works in a similar way to VAT as it’s added as a percentage to the total cost of your insurance premium.
An article by *Actuarial Post reads that Steve White, CEO of the British Insurance Brokers’ Association (BIBA), welcomed the measure and said it would provide ‘some comfort’ to customers already facing premium increases.
But he also pointed out that ‘tax remains a significant proportion of the cost of being responsible’, and voiced hopes that future spending reviews will ‘recognise the road safety benefits of greater use of telematics-based policies by removing premium tax on these to increase their uptake.’
There are two rates of IPT: a standard rate of 12% and a higher rate of 20%, which applies to travel insurance, electrical appliance insurance and some vehicle insurance.
The introductory standard rate of IPT was just 2.5%, but over the years it has increased, to 6% in 2015, then to 9.5% in November 2015.
In October 2016 it rose by 0.5% to 10% before moving to its current rate in 2017, which means that IPT has doubled in only a few years.
Insurers say young drivers have been the hardest hit as they’re the ones that pay the highest premiums.
There are also concerns that rising car insurance costs could lead to more uninsured drivers on the road.
According to the Association of British Insurers (ABI) the government collects an estimated £6.3bn in IPT, more than that levied on beer, wine and gambling.
Most insurance policies must adhere to IPT, but there are some exceptions, which include: cover for disabled drivers who lease with Mobility, mortgage insurance and long-term life/health insurance policies, with the exception of medical insurance.
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** Please note that the above information has been gathered through secondary research. The information provided is not based on our opinion. You should seek further guidance and information before making an informed decision.