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Insurance tax increased

ONE of the more surprising features of the July Budget announcement was that standard Insurance Premium Tax (IPT) is set to increase from six per cent to 9.5 per cent as of 1 November.

The higher rate of IPT concerns insurance sold in relation to certain goods and services. Examples include mechanical and electrical goods, as well as travel insurance, which will remain unchanged at 20 per cent. The Chancellor of the Exchequer, George Osborne, has estimated that the new standard rate of IPT will generate an extra £1.75bn* for the UK’s coffers per annum.

ONE of the more surprising features of the July Budget announcement was that standard Insurance Premium Tax (IPT) is set to increase from six per cent to 9.5 per cent as of 1 November.

The higher rate of IPT concerns insurance sold in relation to certain goods and services. Examples include mechanical and electrical goods, as well as travel insurance, which will remain unchanged at 20 per cent. The Chancellor of the Exchequer, George Osborne, has estimated that the new standard rate of IPT will generate an extra £1.75bn* for the UK’s coffers per annum. Justifying the increase, the Chancellor pointed out that a standard rate of IPT of 9.5 per cent will still be one of the lowest in Europe compared with other major member states. For example, Germany has a 19 per cent IPT rate, while Italy’s is 21.5 per cent.

Exemptions

Not all policies will be affected by the change to the standard rate. Certain classes of insurance, currently exempt from IPT, will continue to be exempt, including:

• Reinsurance

• Commercial aircraft and ships

• Export finance

• Insurance for commercial goods in international transit

• Risks located outside of the UK

The new rate of IPT will apply to all policies incepted on 1 November 2015 or after with some rules for mid-term adjustments, and subject to which accounting scheme the insurer adopts.

Anti-forestalling/anti-avoidance measures

There are anti-avoidance measures in place to limit the opportunities to avoid paying tax at the new rates by manipulating contracts in the period between the announcement of a rate change and the date the rate increase takes effect. The intention is to prevent new risks which would normally be the subject of a new policy being added to existing contracts and so benefiting from the old tax rate rather than the new rate. It should be stressed, however, that as of 1 March 2016, all taxable premiums received by insurers will be subject to the new standard IPT rate of 9.5 per cent, regardless of when the policy incepted. Non-compliance with the new regime is not an option, as it is mandatory for all Financial Services organisations operating under the Finance Act 1994.

Towergate

Regionally, Towergate have one of the largest broking teams in the Midlands and so are able to offer clients a local, professional and personal service, coupled with the enormous buying power of a national organisation. Towergate have recently completed a financial recapitalisation, with Highbridge Capital Management becoming their majority shareholder, Highbridge are a subsidiary of JP Morgan Financial Group.

Towergate will be pleased to provide more detailed advice on the above changes, as well as providing more general advice on your commercial insurance, if you would like more information on Towergate in Northamptonshire, please email in the first instance

Towergate Insurance is a trading name of Towergate Underwriting Group Limited. Registered in England Company No. 04043759, registered address Towergate House, Eclipse Park, Sittingbourne Road, Maidstone, Kent, ME14 3EN. Towergate Underwriting Group Limited are Authorised and Regulated by the Financial Conduct Authority.

*Source: KPMG

Companies mentioned in this article

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