Insurance Premium Tax is a tax on general insurance premiums. The tax is made up of two rates; a standard rate of 5% and a higher rate of 17.5% for travel insurance and some insurance for vehicles and domestic/electrical appliances. It was introduced in 1994 at a flat rate of 2.5%,
Come 1997 it was then increased to 4% on general insurance products and the second higher rate was introduced at 17.% to include travel policies. It was 1999 when we saw the last change with a rise on the standard rate from 4% to 5%. Most long-term insurance plans such as life insurance and income protection are exempt from this tax as are premiums for risks located outside the UK.
Following the recent budget we will see the insurance premium tax(IPT) set rise from 5% to 6%, and the higher rate from 17.5 to 20% come 4 January 2011. There was much speculation prior to the emergency budget many thinking the standard rate could have been doubled to 10% rather than 1% increase that has actually come to fruition, on a positive note it could have been worse for the consumer who face comparatively modest price increases
This will be the first time IPT has been increased since 1999, the majority of the insurances affected are taxed at 5% however travel is taxed at the higher rate. The Chancellor, George Osbourne has made quite an impact with his initial emergency budget, it is a fine balancing act between tightening our belts and continue to ensure there is growth in our economy.
Many will be relieved to see IPT rise by only 1% following the speculation however it is just one of the many areas are disposable income will start to get squeezed.
