Whenever a new Budget comes out like the one we had this summer, it can often be confusing to make sense of all the headlines and understand how it all affects you. With insurance premium tax (IPT) due to change next month, we thought it would be helpful to walk you through what these changes will mean for you before they happen.
What is insurance premium tax?
Before we dive into what the changes surrounding IPT are, let’s first define what it is. Put simply, Insurance Premium Tax (IPT) is a tax on general insurance premiums. The standard rate for this is currently 6%. There is a higher rate of 20% but this only applies to certain types of insurance – such as travel cover.
What are the changes?
George Osborne announced in July that the IPT basic rate is set to increase from 6% to 9.5% from November 1st – the first time it has increased since 2011. This tax hike will apply to a variety of insurance policies including car, mobile, building, private medical, pet and gadget cover. The higher IPT rate of 20% isn’t changing.
What does this mean for me?
The Chancellor suggested that this increase would only affect one-fifth of all premiums, but some critics disagree. The British Insurance Brokers’ Association (BIBA) argue that this price hike will affect around 20.1 million households with contents insurance, 19.6 million with motor insurance and 17 million with buildings insurance.
Due to this price hike, insurance companies are likely to increase the cost of their insurance policies. MoneySuperMarket estimate that a typical two-car family could have to pay on average an extra £35 a year to cover all of their insurance premiums. This may not sound like much, but if you’re already living on a tight budget, any additional cost can make managing your finances that little bit more difficult.
Some insurers have warned further that this IPT rise could see people avoid paying for insurance altogether.
What can I do?
You could look at whether it’s worth renewing any insurance policies that are due for automatic renewal soon, before the change happens on the 1st November. This could help you ‘lock in’ to the lower price and avoid an increase in price to your policy.
With some insurers, you’ll only be able to renew your policy within a certain amount of time before it’s due to end (typically six weeks) so check the details of this beforehand. Some insurers might let you get a quote now in preparation for renewing later, but if prices fluctuate you might not be able to keep the cheaper rate.