George Osborne announced in the UK budget that the standard rate of the UK IPT shall increase to 9.5%.
Who is affected?
Insurers, insurance intermediaries and the insured
The increase in the IPT rates will take effect from 1 November 2015.
For insurers using the Cash Received method, the new rates will have effect for premiums (received under taxable insurance contracts) on or after 1 November 2015.
For insurers using the Special Accounting Scheme, there will be a 4 month concessionary period from 1 November 2015 to 29 February 2016, during which premiums received under taxable insurance contracts entered into before 1 November 2015 will continue to be liable to IPT at 6%. From 1 March 2016 all premiums received by insurers will be taxed at the new rate of 9.5%, regardless of when the policy was entered into.
Anti-forestalling provisions are already in place to prevent tax avoidance. These provisions apply to both accounting schemes and in relation to defined advance payments and extended cover.
Insurers will need to review their systems to ensure that the new rates are applied correctly.
The standard rated rise is not unexpected. The old 6% rate was one of the lowest of all IPT rates across Europe. Further rate rises cannot be ruled out, given the 9.5% rate is marginally lower than the average European IPT rate. This rise will inevitably result in a premium increase for the insured, with the consequence being that some may fail to take out or renew essential, and often, compulsory insurances.
It is estimated that the increase in the IPT rates will raise in excess of £1.5 billion a year.