June Budget – Insurance premium tax
The standard rate and higher rates of insurance premium tax (IPT) are to be increased from 4 January 2011. The standard rate will increase from 5% to 6% and the higher rate, in line with the new VAT rate, from 17.5% to 20%.
The standard rate applies to most general insurance, including property, motor and medical insurance. Life assurance and other long term insurance products are exempt from IPT
The higher rate applies mainly to travel insurance and certain insurances sold with motor vehicles and consumer goods. The higher rate was introduced in 1997 to counter VAT avoidance known as ‘value shifting’ between goods and related insurance, which at the time were subject to a lower IPT rate.
The new rates will have effect for premiums received or written by an insurer on or after 4 January 2011 and the relevant legislation will be included in the 2010 Finance Bill.