Insurance Premium Tax
Insurance Premium Tax (IPT) is charged on insurance premiums and covers most general insurance. This note gives a short history of the tax since it was introduced in 1993, including the rise in the main rate of tax confirmed in the Spring 2017 Budget.
Insurance premium tax (IPT) is charged on insurance premiums and covers most general insurance (eg, motor and household), though life insurance and most other long term insurance is exempt. The tax is forecast to raise £5.9 billion in 2017/18.[1]
IPT was introduced by the then Chancellor, Kenneth Clarke, in his November 1993 Budget, and came into effect on 1 October 1994, charged at 2.5% on a gross basis. Since 1 April 1997 there have been two rates of tax: a standard rate, initially set at 4%, and a higher rate, initially set at 17.5%, applied to a limited range of insurance usually sold with goods and services subject to VAT.
The main rate of tax has been increased five times since then. First, the then Chancellor Gordon Brown increased the standard rate to 5% in the 1999 Budget, with effect from 1 July 1999.[2] Second, in his Budget following the 2010 General Election, the then Chancellor George Osborne announced the IPT rate would rise to 6% from 4 January 2011. Mr Osborne also announced that the higher rate would rise to 20%, aligned with the increase in the standard rate of VAT to 20%, to take effect at the same time.[3] Following the 2015 General Election, Mr Osborne presented the Conservative Government’s first Budget on 8 July. The Chancellor announced that the main rate of IPT would be increased to 9.5%, effective from November 2015.[4] This was estimated this will raise £530m in 2015/16, rising to £1.46bn in 2016/17.[5] In his second Budget on 16 March 2016 Mr Osborne announced that the main rate would rise to 10% to provide extra funding for flood defences.[6] The new rate would apply from 1 October 2016.[7] The 0.5 percentage point increase was forecast to raise £80m in 2015/16, rising to around £200m a year in subsequent years.[8]
Finally in his Autumn Statement on 23 November 2016 the Chancellor Philip Hammond announced that the rate of IPT would rise by 2 percentage points to 12% with effect from 1 June 2017. This is forecast to raise £520m in 2017/18, rising to £840m in 2018/19.[9]
Guidance on the operation of IPT, as well as statistical data on its yield, is published by HM Revenue & Customs.[10]
Notes :
[1] OBR, Economic & Fiscal Outlook, Cm 9572, March 2018 (Table 4.6: current receipts).
[2] HC Deb 9 March 1999 c186
[3] HC Deb 22 June 2010 c177
[4] HC Deb 8 July 2015 c326. See also, HMRC, Insurance Premium Tax: increase to standard rate - tax information & impact note, 9 July 2015.
[5] Budget 2015, HC 264, July 2015 p75 (Table 2.1 – item 19)
[7] HM Revenue & Customs, Changes to Insurance Premium Tax: increase to standard rate: tax information & impact note (TIIN), 16 March 2016
[8] Budget 2016, HC901, March 2016 p86 (Table 2.1 – item 61); HM Treasury, Budget 2016 Policy Costings, March 2016 p59
[9] HC Deb 23 November 2016 c907. Spring Budget 2017, HC 1025, March 2017 p28 (Table 2.2 – item g). see also, HMRC, IPT increase of standard rate – TIIN, 5 December 2016.
[10] Insurance Premium Tax Notice IPT1, February 2017 & IPT Statistical Bulletin, December 2017