It is just over a year ago that Insurance Premium Tax increased from 6% to 9.5%, but in the March 2016 budget, HMRC announced a further 0.5% increase in the standard rate of Insurance Premium Tax, to be effective from October 2016.
This will affect premiums on general insurance policies which includes:
- Property insurance
- Private health insurance (IPT is not chargeable on Healthcare Trusts)
- Dental insurance
- Cash plans (some providers are absorbing the IPT increase until renewal in 2017)
- Personal accident insurance
- Business travel insurance (leisure travel insurance is charged at 20%)
With the 0.5% increase in IPT, assuming no other changes, premiums will consequently increase, however timing of this will be key.
- For any policies taken out before 1 October 2016, IPT will still apply at the existing rate of 9.5%.
- For any policy started or renewed on or after 1 October 2016, IPT will apply at the new rate of 10%.
- The 10% rate of IPT will also apply on mid-term adjustments on a policy that started or renewed on or after 1 October 2016
- For mid-term adjustments on a policy that started or renewed before 1 October 2016, transition rules will apply:
- If the change is effective in the period 1 October 2016 to 31 January 2017, and does not add a new risk to the policy, IPT will be applied at 9.5%;
- Otherwise, IPT will apply at 10%
For full or partial policy cancellations, the refund should reflect the rate if IPT applicable when the plan was taken out, renewed or adjusted.
When obtaining quotes in September, it is important to note that policies quoted up to 30 September 2016 will probably be quoted at 9.5% IPT, but any policy that starts on or after 1 October 2016 will be subject to the new 10% rate of IPT.
However, a concessionary period can apply where the insurer uses the ‘special accounting scheme’. This is designed to give insurers time to make the changes necessary to their internal systems to reflect the increase in IPT. The concessionary period affects any premiums that are ‘effective’ prior to 1 October 2016. ‘Effective’ is the date that the insurance cover starts or changes. The lower 9.5% rate of IPT can be used providing premiums are invoiced by the end of the concessionary period on 31 January 2017.
Any premiums that are invoiced from 1 February 2017 onwards use the higher 10% rate regardless.
For further information please refer to the Gov.uk website or contact your Mattioli Woods consultant.