After the 2016 Budget Speech, a lot of the big headlines focused on the new Lifetime ISA, Help to Save scheme or the sugar tax – so you’d be forgiven if you missed the news about the rise to Insurance Premium Tax (IPT).
The basic rate of IPT is set to increase by 0.5%, meaning it will rise from 9.5% to 10%. To find out what this increase could mean for your insurance premiums, we’re going to run you through the possible outcomes.
What is insurance premium tax?
Before we do that, let’s first make sure you know what IPT is. IPT was first introduced in 1994 and is a tax on general insurance premiums. This includes home insurance, car insurance and travel insurance.
There are two rate bands for IPT: the standard rate – the one that is increasing to 10% – and a higher rate of 20% which applies to certain insurance policies such as travel. Some types of insurance are exempt from IPT such as life insurance.
Has it increased before?
Yes – in the 2015 Summer Budget it was announced that the IPT basic rate would increase from 6% to 9.5% from November last year. This was the first time the IPT rate had increased since 2011. The rise in IPT saw some insurers pass the cost of this onto customers, with nearly £13 being added to the average comprehensive motor insurance policy and over £10 to the average combined building and contents policy, according to The Association of British Insurers.
What does this mean for me?
This rise – although smaller than last time – is expected to increase the cost of insurance premiums again on top of the increases that we’ve already seen. Figures from the Government predict that the average comprehensive motor insurance policy will increase by £2, whereas the average combined building and contents policy will increase by £1.
It’s expected that these increases will be felt more by those who pay the highest insurance premiums, who are typically older or younger drivers, households in flood-risk areas or inner cities.
What can I do?
As this tax is set to come in on October 1st, you could look into renewing any insurance policies that are up for automatic renewal before this point. This could see you take advantage of a lower price and avoid an increase to your premiums for another year.
You’ll have to check the details of your policy though, as some insurers will only let you renew your policy within a certain amount of time before it’s due to end. This is typically six weeks beforehand. If you want, you might be able to get a quote now in preparation for when you want to renew, but you’re unlikely to be able to keep this rate if prices fluctuate between now and then.
Once this increase is in place, you could shop around to see whether you could save by switching to another insurer. For details on how to reduce the cost of your car insurance, read our blog.