UK set for third increase in Insurance Premium Tax in under two years
In his Autumn Statement on 23 November, Chancellor Philip Hammond announced the third increase in Insurance Premium Tax (IPT) in less than two years.
IPT - a history of rises
IPT was introduced in the UK in 1994 at a rate of 2.5% and slowly rose to a modest level of 6%. Since 2015, however, we have seen more frequent increases. Firstly in November 2015 (to 9.5%) and again in October 2016 (10%), with the latter being cited as a way to fund flood defences across the country. It is suggested that next year's increase is essential to pay for the government's infrastructure plans and to “build an economy that works for everyone”.
Increase effective from June 2017
The increase will see the tax rise from its current level to 12% from June 2017, an increase of 20% and effectively doubling the rate in under two years:
- November 2015 - IPT rose from 6% to 9.5%
- October 2016 - IPT rose from 9.5% to 10%
- June 2017 - IPT will rise from 10% to 12%
The new rate will apply to all insurance policies incepted from 1 June 2017.
There is again no change to the higher IPT rate of 20% (this applies to a number of personal lines insurance, such as travel insurance).
Will there be any further increases?
Given the frequency of the recent increases we could be excused for expecting further hikes in the rate but particularly with Hammond, announcing next year's increase, noting that rates in the UK, notwithstanding the recent increases, remain some of the lowest in Europe.
Businesses are naturally keen to avoid paying the additional rate of tax, where possible. However, the government introduced a number of anti--avoidance measures in the last year, which you need to be aware of.
We can help you:
- undertake a review of your insurance programmes; and
- comply with HMRC's recently introduced anti-avoidance rules.
For more detailed advice regarding the specifics for your business, speak to your usual Lockton contact.