UK summer budget announcement: increase in IPT

Our Head of IPT Services looks at UK Chancellor George Osborne's surprise increase announcement, and the implications for insurers and policyholders.

The UK Summer Budget 2015 published 8 July has announced that the standard rate of Insurance Premium Tax (IPT) will be increased by 3.5 percentage points to 9.5% as of 1 November 2015.

From this date all premiums received by insurers using the IPT cash accounting scheme will be charged at 9.5%. For insurers using the special accounting scheme, there will be a 4 month concessionary period that will begin on 1 November 2015 and end on 29 February 2016, during which premiums received that relate to policies entered into before 1 November 2015 will continue to be liable to IPT at 6%.

From 1 March 2016 all premiums received by insurers will be taxed at the new rate of 9.5%, regardless of when the policy was entered into.

The insurance industry has reacted with surprise to the move, with many industry insiders highlighting the possibility of businesses and individuals underinsuring their risks as a result of the tax increase.

The scale of the increase has also been criticised – an increase in tax of 58.3% on the majority of insurance policies is unprecedented since the introduction of UK IPT in the 1994 Finance Act.

The direct impact of the tax increase will be felt by policyholders who will bear the increased cost of the tax. Insurers are also concerned about a possible drop in premium income due to potential under-insurance.

There is speculation in some quarters that this represents part of a gradual move towards aligning the IPT rate with the VAT rate, however there has been no official word on this theory.

TMF Group experts are monitoring developments on the subject, and will be able to assist clients with the transition to the new rate.

Contact our experts in the UK.

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