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HMRC internal manual

Insurance Premium Tax

Liability of insurance contracts: Reinsurance: Outline and legal provisions

Paragraph 1 of Schedule 7A to the Finance Act 1994 exempts a contract if it is:

… a contract of reinsurance.

Purpose of the exemption

Reinsurance is a means by which insurers spread their risk. It is one of the ways they protect themselves against the possibility that a large claim might affect their financial stability. They do this by passing some of the premium they have received to a reinsurer, who then covers (or “reinsures”) some of the original insurer’s risk. It is also possible that a reinsurer may, in turn, seek to reinsure the “reinsurance” that they have written. This is known as retrocession. There would be double taxation if both the insurer and the reinsurer accounted for IPT on the premium and so, to prevent such double taxation, reinsurance is exempt from IPT.