Chancellor George Osborne caught the insurance industry by surprise earlier this year with a Budget announcement that insurance premium tax (IPT) will rise by a whopping 56% to 9.5% from November this year.
But what does this mean for your clients? Policies established on or renewed on or after 1 November 2015 will attract the new IPT rate of 9.5% regardless of when you actually provided the quote or any applicable rate guarantee. Any mid-term change which results in the payment of an additional premium will also attract the new rate as will any adjustment or cancellation which results in a refund of premium.
The existing IPT rate of 6% will apply to those policies established or renewed prior to 1 November so long as the insurer has entered the premium on to their systems by the end of February next year. The new rate of IPT of 9.5% will apply to any mid-term changes that take place on or after 1 November resulting in an additional premium, however the old rate of 6% will apply to any changes that result in a refund.
It’s going to be interesting to see whether the Chancellor chooses to weigh up the market reaction before deciding whether to push IPT up again in future budgets. Let’s face it, all taxes are reviewed regularly and as IPT hasn’t gone up since 2011, it could well be in his sights as a future revenue generator for the Treasury. Some in the industry are speculating that he could look to bring it in line with VAT. As the average IPT rate in the EU is over 10%, with the rate in Germany as high as 19%, further increases could be argued away as bringing the UK in line with its European neighbours.