Insurance premium tax to rise to 12%
Standard insurance premium tax (IPT) rate will increase from 10% to 12%
In his Autumn Statement the UK Chancellor Philip Hammond announced that the IPT rate will increase from from 10% to 12% on 1 June 2017. This increase means the UK’s IPT rate will have doubled since summer 2015, and will be the sixth highest rate in Europe. Unlike the previous increase from 9.5% to 10%, the additional tax will not be hypothecated to help fund flood defences.
The new rate will apply to policies starting from 1 June 2017.
How the rate rise will work
A longer-than-normal transitional arrangement of 12 months will apply for this change in IPT, due to lobbying by insurers and brokers.
Almost all insurers use the special accounting scheme where there is a ‘transitional period’, which this time starts on 1 June 2017 and ends on 1 June 2018. In practice, this is expected to mean that all policies incepting before 1 June 2017 will be at the current 10% rate.
During this period, 10% tax will still apply to taxable premiums received under contracts in which the insurance began before 1 June 2017, provided that the premium is written in the insurer’s book before 1 June 2018.
The new 12% IPT rate will apply to all taxable premiums received under contracts with an inception date on or after 1 June 2017. All taxable premiums, regardless of the inception date, that are written by insurers after 1 June 2018 will be subject to the new 12% rate.
If there is an additional premium added to an existing IPT will be due at the old rate of 10% provided the policy starts before 1 June 2017 and is reported to the insurer by 1 June 2018.
This will only apply where the additional premium is not considered a ‘new risk’ that would normally be the subject of a new policy. In such cases, IPT will be due at the new rate regardless of whether the additional premium is reported before 1 June 2018.