There are curently two different insurance premium tax rates:

a standard rate of 5 per cent
a higher rate of 17.5 per cent

Insurance Premium Tax (IPT) was introduced in Finance Act 1994 and came into effect from 1 October 1994.  Certain types of risk such as life assurance are exempt from PIT however, in the case Professional Indemnity Insurance it is currently charged at 5%.

When  IPT was first introduced it was at a flat rate of 2.5% but it was increased on general insurance products to 4% in 1997 and then again to 5% in 1999.  In 1997 a second higher band of 17.5% for certain policies such as travel insurance was introduced.

From the 4th January 2011 the standard rate if IPT is to increase to 6% whilst the higher rate will increase to 25%.  This transition has the potential to cause the industry problems as the Government have not allowed any period of transition as was the case the last time the rate changed.  The tax point will vary depending on how each Insurer deals with IPT in its accounts which could serve to further complicated matters.

Summary of Changes

All travel insurance policy sales after the midnight on 3rd January 2011 will incur a new standard rate of 6% with a higher rate where applicable at 20%

Mid term adjustments will incur the higher rate of tax with the exception of refunds which will be at the original tax rate.

Quotations given prior to the 4th January must be taken up by the 3rd January otherwise the higher rate will apply

This information is provided based on our understanding of the legislation on 11 November 2010