Adrian Smith, global head of IPT at KPMG, comments on the announcement that Insurance Premium Tax (IPT) will be increased from 6 per cent to 9.5 per cent.
“IPT generates around £3bn per year for the UK government, so today’s increase will raise an additional £1.75bn.
“However the increase in IPT might result in general insurance policyholders having insufficient cover, as they seek to balance an increase in price with maintaining the cover they require. While 9.5 per cent is still a reasonably low rate compared to other countries, it could be enough to tip the point for a customer to reduce their cover, or opt for no cover at all.
“We may also see businesses choose to insure with overseas insurers who do not always correctly account for UK IPT. UK-based insurers could struggle to compete with these overseas insurers who, by not correctly charging this tax, are able to offer lower premiums. However businesses must be careful as these providers may not necessarily have the same level of regulation as UK insurers and, therefore, policyholders may not benefit from the same level of protection.
“Overall it is unlikely to significantly impact insurers as most insurers have systems in place to react to such changes, having previously had the original inception of IPT and three standard rate increases to contend with.“However the real challenge will be for UK insurers to help policyholders understand the balance between price and cover given the changes.”
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Simon Chan, KPMG Corporate Communications
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KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff. The UK firm recorded a turnover of £1.9 billion in the year ended September 2014. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 162,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.