Insurance Premium Tax
11 Aug 2010
Increase in the Standard Rate and Higher Rate
Who is likely to be affected?
1. Insurers who receive premiums under taxable insurance contracts, and some intermediaries responsible for collecting taxable premiums.
General description of the measure
2. The standard rate of insurance premium tax (IPT) applies to most general insurance, including property, motor and medical insurance. Life assurance and other long term insurance products are exempt from IPT.
3. The higher rate of IPT applies to travel insurance and to certain insurance (e.g. extended warranties) sold alongside motor vehicles and some consumer goods. It was introduced at 17.5 per cent in 1997 to stop VAT avoidance through 'value-shifting' between goods (subject to VAT at 17.5 per cent) and related insurance.
4. Legislation will be introduced in Finance Bill 2010 to provide for an increase in the standard rate of IPT from 5 per cent to 6 per cent and an increase in the higher rate of IPT from 17.5 per cent to 20 per cent in line with the increase in the standard rate of VAT.
5. There will be a lead-in period of just over six months before the increase has effect. The new standard rate and higher rate will have effect for premiums received or written by an insurer on or after 4 January 2011. Please see paragraphs 7 and 8 below.
Current law and proposed revisions
6. IPT is charged as an inclusive amount within premiums received under taxable insurance contracts. Section 51 of the Finance Act 1994 provides the current higher rate of IPT as 17.5 per cent. and the standard rate of IPT as 5 per cent. Finance Bill 2010 will increase the standard rate of IPT to 6 per cent and increase the higher rate of IPT to 20 per cent.
7. For insurers using the cash receipt method to account for IPT, the new rates will have effect for premiums received under taxable insurance contracts on or after 4 January 2011.
8. For insurers who account for IPT using the special accounting scheme the new rates will have effect for premiums that are written into their records as due to them on or after 4 January 2011.
9 There are already special measures in place to prevent tax avoidance in relation to the period between the announcement of a rate change and the date the rate increase takes effect.
10.1f you have any questions about this change, please contact the VAT Helpline on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk, and about IPT rate rises in section 14 of the Public Notice IPT1.