Insurance Premium Tax (IPT) is a type of indirect

tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...

levied on general

insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...

premiums in the

United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...

Overview

The

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introduced the Insurance Premium Tax to raise revenue from the insurance sector, which was viewed as being under-taxed, and not subject to

Value Added Tax A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the en ...

. The main EU legislation regarding VAT (Council Directive 2006/112/EC) states that insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents, are exempt from VAT. The Insurance Premium Tax was announced by

Kenneth Clarke Kenneth Harry Clarke, Baron Clarke of Nottingham, (born 2 July 1940), often known as Ken Clarke, is a British politician who served as Home Secretary from 1992 to 1993 and Chancellor of the Exchequer from 1993 to 1997 as well as serving as de ...

in the November 1993 budget and introduced with the

Finance Act 1994 A Finance Act is the headline fiscal (budgetary) legislation enacted by the UK Parliament, containing multiple provisions as to taxes, duties, exemptions and reliefs at least once per year, and in particular setting out the principal tax rates f ...

which received

Royal Assent Royal assent is the method by which a monarch formally approves an act of the legislature, either directly or through an official acting on the monarch's behalf. In some jurisdictions, royal assent is equivalent to promulgation, while in oth ...

on 3 May 1994. IPT is under the care and management of

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. IPT raised £2.3 billion in the fiscal year 2009/10.

Law

The main law relating to IPT includes: * the Finance Act 1994 (sections 48-74 and schedules 6A, 7 and 7A, as amended by the Finance Acts 1997, 1998,1999, 2003, 2007, 2008, 2009 and 2010), which is the primary legislation establishing the principles of IPT * the Insurance Premium Tax Regulations 1994 (

statutory instrument In many countries, a statutory instrument is a form of delegated legislation. United Kingdom Statutory instruments are the principal form of delegated or secondary legislation in the United Kingdom. National government Statutory instrumen ...

1994/1774 - as amended), which is the main secondary legislation relating to IPT and which gives more details about the operation of the tax

Rates

There are two different insurance premium tax rates: * a standard rate of 12% * a higher rate of 20% Insurers providing taxable insurance are required to register and account for IPT, as must intermediaries who sell insurance subject to the higher rate of IPT and charge a separate insurance-related fee on top of the premium itself. The Chancellor

George Osborne George Gideon Oliver Osborne (born Gideon Oliver Osborne; 23 May 1971) is a former British politician and newspaper editor who served as Chancellor of the Exchequer from 2010 to 2016 and as First Secretary of State from 2015 to 2016 in the ...

stated in the 2016 spring budget that the standard rate of IPT would increase from 9.5% to 10% from 1 October 2016. In the 2016 autumn statement the new Chancellor

Philip Hammond Philip Hammond, Baron Hammond of Runnymede (born 4 December 1955) is a British politician and life peer who served as Chancellor of the Exchequer from 2016 to 2019, Foreign Secretary from 2014 to 2016, and Defence Secretary from 2011 to 2014. ...

stated that the standard rate would increase from 10% to 12% from 1 June 2017.

Historic rates

From 1 October 1994 to 31 March 1997, a single rate of 2.5% was charged. From 1 April 1997, two rates were charged:

Standard rate

*1 April 1997 to 30 June 1999 - a standard rate of 4% *1 July 1999 to 3 January 2011 - a standard rate of 5% *4 January 2011 to 31 October 2015 - a standard rate of 6% *1 November 2015 to 30 September 2016 - a standard rate of 9.5% *1 October 2016 to 31 May 2017- a standard rate of 10% *From 1 June 2017, the standard rate is 12%

Higher rate

*1 April 1997 to 4 January 2011 - a selective higher rate of 17.5% on certain types of insurance arranged through certain suppliers of other goods and services, in line with VAT *From 1 August 1998 - the higher rate was extended to all taxable travel insurance, regardless of the type of supplier *From 4 January 2011 - the higher rate rose to 20%, in line with VAT

Exemptions

All types of insurance risk located in the UK are taxable unless they are specifically exempted. Exemptions from this tax include: *

reinsurance Reinsurance is insurance that an insurance company purchases from another insurance company to insulate itself (at least in part) from the risk of a major claims event. With reinsurance, the company passes on ("cedes") some part of its own ins ...

life insurance Life insurance (or life assurance, especially in the Commonwealth of Nations) is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the dea ...

, permanent-health insurance and all other ‘long term’ insurance, except

health insurance Health insurance or medical insurance (also known as medical aid in South Africa) is a type of insurance that covers the whole or a part of the risk of a person incurring medical expenses. As with other types of insurance, risk is shared among m ...

* commercial aircraft and some associated liabilities * commercial ships and some associated liabilities * lifeboats and lifeboat equipment * foreign or international railway rolling stock and some associated liabilities * export finance * commercial goods in international transit * block insurance policies held by

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which covers all disabled drivers who lease their cars and motor cycles through the scheme * risks located outside the UK * the

Channel Tunnel The Channel Tunnel (french: Tunnel sous la Manche), also known as the Chunnel, is a railway tunnel that connects Folkestone (Kent, England, UK) with Coquelles ( Hauts-de-France, France) beneath the English Channel at the Strait of Dover ...

IPT registration

Businesses are required to register for IPT if they are: * an insurer who receives or intends to receive taxable insurance premiums * an intermediary who charges a fee to the insured in addition to the amount of higher rated premium due Businesses must be registered from the date they receive (or someone receives on their behalf) their first taxable premium. Businesses must inform HM Revenue & Customs within 30 days of forming the intention of receiving taxable premiums as the insurer.

Notes and references

{{reflist Taxation in the United Kingdom