On 23 November 2016, the Chancellor of the Exchequer, Philip Hammond delivered the UK’s final autumn statement.
The statement targeted several areas which impact consumers and businesses including:
- An increase in the income tax and high income tax thresholds;
- A stop to tax savings on salary sacrifice and benefits in kind;
- Employee and employer National Insurance thresholds to be equalised at £157 per week from April 2017; and
- Another increase in Insurance premium tax (IPT) from 10% to 12% in 2017.
Turning to IPT in more detail, this is governed by the Finance Act 1994. IPT is a tax which is charged on the receipt of a premium by an insurer if the premium is:
- received under a taxable insurance contract and
- incepted on or after 1st October 1994.
Essentially, it is paid each time an insurance policy is purchased in the UK.
The initial standard rate of IPT in 1994 was 2.5% this has increased steadily over the years. In April 1997 it increased to 4% then to 5% in July 1999 and 6% in January 2011, followed by a 3.5% increase in November 2015 to 9.5% and, most recently 10% on 1 October 2016. The new IPT rate of 12% is due in June 2017.
IPT is a tax on insurers and it is up to them whether they wish to and how to pass on the costs to customers. The increase will have an impact on consumers if insurers increase the cost of insurance policies which is likely. Consumers who purchase motor insurance, household insurance, private medical insurance and pet policies are likely to be affected the most by this change. Life insurance, permanent health insurance and all other long-term insurances are exempt from IPT. Insurers will also need to update their contracts and policies to reflect the new IPT rate.
There is a higher rate of IPT which is currently set at 20% and this covers policies for travel insurance and mechanical breakdown. This rate was 17.5% until January 2011 when it increased. The higher rate of IPT was unchanged by the autumn statement. However, only time will tell if the rate will remain at 20%.
The full autumn statement can be read here.