The cost of buildings and car insurance could go up next year after Chancellor Philip Hammond announced that Insurance Premium Tax (IPT) will increase by 2% from June 2017.
The IPT basic rate will increase from 10% to 12%. This means that the IPT rate has doubled in less than two years – up until October 2015, it was just 6%.
To help you understand what this means for you, we're taking you through the policies it will affect and how you can avoid this price hike.
Introduced in 1994, IPT is a tax on general insurance premiums. These include buildings, contents, car, pet, mobile and private medical insurance. It doesn't apply to all forms of insurance though. For example, travel insurance is exempt as it has a separate tax rate.
There is a higher rate of IPT which remains at 20%. This is what you pay on certain insurance policies such as travel insurance and electrical appliances insurance. You won't ever notice IPT as insurers usually add it as a percentage on top of the premium – it’s usually already included in the price of most quotes.
What does this mean for me?
It is likely that from June next year, you'll see an increase on the price of certain insurance premiums. This is because insurers might pass on some of the cost of IPT to their customers.
Previous IPT rises – from 6% to 9.5% in November 2015, then to 10% in October 2016 – could have added as much as £109 extra to the annual bill of a typical household. These figures are from calculations by the Association of British Insurers and breakdown as follows.
• The average comprehensive motor policy rose by more than £32, assuming two cars.
• The average combined buildings and contents policy went up by over £12.50.
• The average pet insurance policy increased by more than £12.
• The average private medical insurance policy – an extra £52.50.
It’s possible that the latest price rise to IPT could add further strain to those households 'just about managing'.
Is there anything I can do?
Although you can't avoid this price hike completely, you can plan for when it comes in. If your insurance is due for renewal next year, start to check quotes in March or April to see whether you can lock in the best price possible.
After June 2017, certain quotes will factor this price rise in. You should also be aware that the cost of making administration changes – such as name or address amends on a policy – might increase as a result of this price hike.