Insurance premium tax
The standard rate of IPT, which is chargeable on most types of insurance apart from life assurance and long term insurance, will increase from 5% to 6%. The higher rate, which applies to limited categories of insurance, including travel insurance and extended warranties etc when sold alongside domestic appliances and motor vehicles, will increase from 17.5% to 20% to match the increase in the standard VAT rate.
Who will be affected?
Insurance companies and some insurance intermediaries who sell general insurance covering such things as land and personal property, motor vehicles, travel, medical risks and extended warranties will have to account for the additional tax. If those companies decide to pass on the increases then consumers will see increases in the prices of their insurance premia.
The new rates will apply to premia received or insurance written on or after 4th January 2011. There are existing rules to prevent pre-payment arrangements being implemented in the period prior to the date of introduction in order to mitigate the effect of the rate increases.
The Treasury estimates that the increases will generate additional revenue of circa £455m per annum. Although the increase will not be welcomed by the insurance industry the 1% increase in the standard rate is less than that envisaged by many commentators.