Insurance Premium Tax: increase of standard rate
Published 5 December 2016
© Crown copyright 2016
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/insurance-premium-tax-increase-of-standard-rate/insurance-premium-tax-increase-of-standard-rate
Who is likely to be affected
All insurers who provide non-exempt insurance cover for UK risks and the brokers and agents who act for them.
Purchasers of insurance which is not exempt from Insurance Premium Tax (IPT) whose insurers choose to pass on the IPT rate rise to their customers.
General description of the measure
The measure will increase the rate of IPT paid on premiums which are taxed at the standard rate of IPT by 2%.
Policy objective
This measure will increase the revenue raised by IPT.
Background to the measure
This measure was announced at Autumn Statement 2016.
Detailed proposal
Operative date
The new standard rate of IPT will be due from 1 June 2017 on insurance premiums received on or after 1 June 2017 which relate to risks for which the period of cover under the terms of an insurance contract begins on or after that date. Premium payments relating to risks for which the cover begins prior to 1 June 2017 that are treated as received prior to the 1 June 2018 will be liable to IPT at the old rate. Premium payments relating to risks for which the cover begins prior to 1 June 2017 that are treated as received on or after the 1 June 2018 will be liable to IPT at the new rate.
Current law
The relevant legislation is Part III of Finance Act (FA) 1994. Currently the IPT standard rate is 10%, as provided by section 51 of FA1994. Insurance contracts which are exempt from IPT are set out in Part 1 of Schedule 7A to FA 1994. Certain categories of insurance are subject to a higher rate (20%) of IPT and these are set out in Part II of Schedule 6A to FA 1994.
Proposed revisions
Legislation will be introduced in Finance Bill 2017 to amend section 51(2) of FA 1994 to change the standard rate of IPT to 12%.
The new standard rate will be due from 1 June 2017 on premiums received on or after 1 June 2017 which relate to risks for which the period of cover under the terms of an insurance contract begins on or after that date.
There will be a backstop date of 1 June 2018 from which all premiums received will be subject to the increased standard rate of IPT regardless of whether they are received in respect of new or existing risks and regardless of when the cover for those risks begins under the contract.
The anti-forestalling provisions will be reviewed and any changes will be announced at Budget 2017.
Summary of impacts
Exchequer impact (£m)
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 |
|---|---|---|---|---|---|
| - | +680 | +840 | +840 | +845 | +855 |
These figures are set out in table 2.1 of Autumn Statement 2016 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2016.
Economic impact
The changes to IPT will have a small positive impact on Consumer Price Index inflation.
The costing is adjusted for behavioural responses resulting from any change associated to prices of general insurance products. It also takes into account a small reduction in the demand for standard-rated insurance and a small increase in tax planning activity by insurance companies.
Impact on individuals, households and families
The measure is expected to have a small impact on individuals and households purchasing non-exempt insurance if insurers choose to pass on the IPT rate rise to customers.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure will not impact on those disabled people who are eligible for the Motability Scheme as insurance for vehicles provided under the scheme is exempt from IPT.
No other impacts affecting those sharing other protected characteristics have been identified.
Impact on business including civil society organisations
This measure is expected to have no administrative impact on businesses purchasing insurance which is not exempt from IPT, but the cost of purchasing insurance may rise, if Insurers choose to pass on the IPT rate rise.
There are in the region of 1,000 insurers in the UK who will incur one-off costs in updating their systems to apply the new tax rate. The government expects this additional burden to be negligible. This measure is expected to have no ongoing administration burdens.
Insurers, brokers and agents will have to change the details of their contracts but by allowing a delay to 1 June 2017 before the full impact of the rate rise is felt, the impact of this will be minimised.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
HMRC will need to make changes to IT systems to implement this measure, at an estimated cost of £100,000.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax returns and receipts.
Further advice
If you have any questions about this change please contact Helen West on Telephone: 03000 585836 or email: helen.west@hmrc.gsi.gov.uk.