In his budget The Chancellor increased insurance premium tax (IPT) from 9.5% to 10%. This is the second IPT rise in under a year following the increase from 6% to 9.5% in November 2015.  In his budget statement, George Osborne cited "the increasing extreme weather events our country is facing" as grounds for the half percent rise.  He will "commit all the extra money we raise to flood defence spending. That's a £700 million boost to our resilience and flood defences.”

Despite the steep hike in rates from 6% less than a year ago, the UK rate is still below the European average.

What you need to know

The new rate will apply to all insurance policies incepted from 1 October 2016.  For any amendments made after this date, but to policies already in place at 1 October 2016, the lower rate of 9.5% will apply.  This will be the case until 1 February 2017, at which point 10% will be applicable on all transactions.

There is no change to the higher IPT rate of 20% (this applies to a number of personal lines insurance, such as travel insurance).

HMRC has introduced anti-avoidance rules to prevent the use of artificial arrangements to avoid the IPT increase.  If you will be renewing an insurance policy, or placing a new cover ahead of the 1st October deadline, and are considering the option of an extended term, or you have a policy with 'cancel and replace' arrangements in place, speak to your Lockton account manager to discuss the IPT implications.

Further advice

You can download our guidance note on the implications of the IPT rate rise - simply click on the link below.  For more detailed advice regarding the specifics for your business, speak to your usual Lockton contact .   We can help you:

• review your insurance programmes to ensure that they remain efficient and appropriate for your business; and
• comply with HMRC's IPT anti-avoidance rules.