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Cost of insurance set to rise in June 2017 with IPT increase

Joe Howell's picture

Insurance premium tax increase 2017

Chancellor Philip Hammond today confirmed that Insurance Premium Tax (IPT) is set to increase to 12% in June 2017. This is the latest of a number of recent increases to IPT and means that the tax on insurance premiums will have doubled in less than two years:

  • November 2015 - IPT rose from 6% to 9.5%
  • October 2016 - IPT rose from 9.5% to 10%
  • June 2017 - IPT will rise from 10% to 12%

 

What's IPT?

Insurance Premium Tax (IPT) was first introduced in the UK in 1994, and is a tax on general insurance premiums (including home, travel and mobile phone insurance). There are currently two bands, with 10% being the most common rate. A higher rate applies to travel insurance, appliance insurance and some vehicle insurance - which are all at 20% (the same as VAT).

 

Why's this change significant?

As IPT is a tax that consumers have to pay when they buy insurance, it's the public who will take the hit from this latest change. In response to the 2% increase, Tim Ryan, Executive Chairman at UNA has commented:

“This is a significant blow. As a result, this will significantly hit the pockets of families throughout the country with significant figures being added to the average buildings and contents policies...When IPT was initially raised to 9.5 per cent, which was bad enough, our own survey of 1000 consumers found that a quarter were forgoing buying insurance as a result...This is a huge concern as it increases their personal risks, and in the case of motor insurance could mean a rise in illegal drivers."

Clearly the larger the insurance premium, the more significant the effect of the recent IPT change will be. So this will hit customers of home and motor insurance the most. However, it will also increase the cost of mobile phone insurance slightly - adding around 10p per month to the average policy, or £1.20 per year.

 

Who does the increase effect?

The IPT increase will affect anyone who is taking out an insurance policy on or after 1st June 2017. So if you take out a new policy or renew before that date then the current 10% rate will still apply for the first year of your cover.

Likewise, if you already have an active policy the price will remain the same until your annual renewal on or after 1st June 2017.

 

Are there likely to be further increases?

Given the recent rate of change, it seems very likely that there will be further increases to IPT in the next couple of years. Insurance Premium Tax is an incredibly effective way for the Treasury to raise additional funds - particularly with many products, like car insurance, being compulsory purchases for much of the public.

There's already a higher rate of 20% being applied to travel and other insurances, so it seems likely that we'll see the 12% rate gradually increase to match this and VAT in the medium term.