Another tax hike was announced in the chancellor’s Autumn Statement – but not an obvious one. There’s to be an increase in the Insurance premium tax (IPT) which has now meant it’s been labelled as a government ‘stealth tax’. So how will this increase affect you?
IPT is currently charged at 10% but the Autumn Statement means that from 1 June 2017, a further 2% will be added, bringing IPT to 12%
IPT was introduced way back in 1994 at 2.5%, but not all types of insurance are taxed – long term policies such as life insurance, are exempt; whilst some policies, such as travel insurance and mechanical breakdown policies, are charged at 20% (these won’t be subject to any further increase in June though).
Critics say that IPT is unfair as it’s charged on individual policies rather than a flat fee or percentage of a set amount. What a 12% tax means is that those paying more for their policies – such as young drivers – will simply pay even more tax. What’s also of concern, is that rising insurance costs, especially amongst drivers, could lead to even more uninsured cars on the road (it’s estimated that there are already about one million uninsured cars being driven on UK roads). It could also mean that those who need insurance, just find that they can’t afford it.
The three most recent increases in IPT have meant that the average private healthcare policy has risen by about £129; comprehensive car insurance by £25 and buildings and contents insurance by almost £19. The Association of British Insurers (ABI) have said that IPT affects more than 50 million policies across businesses, charities and private individual’s insurance policies.
So how much money is this generating? The ABI estimates that the last three IPT increases will raise over £13 billion over five years. And what do the government plan to do with the money? Well, the aim is to spend it on building more infrastructure, which is needed. The chancellor was also keen to stress that the UK’s IPT is still one of the lowest in Europe.
There’s not a lot any of us can do about IPT specifically – it’s here to stay whether we like it or not; so, the moral of the story is really about being a savvy insurance shopper. We know it’s easy to fall into the auto-renewal trap, and that it saves you a whole heap of bother, but wouldn’t you rather do a little bit of homework and try to save yourself a whole heap of money instead?
At comparethemarket.com, we make shopping for insurance easy; we’ll tell you exactly how it is and bring you quotes from our trusted insurance partners – and you can do it all from the comfort of your front room. So, shop savvy and start comparing...