Millions to be hit by Insurance Premium Tax rise

Updated on 27 October 2015 | 10 Comments

Millions of us will be paying more for our car and home insurance from this weekend thanks to the increase in the Insurance Premium Tax.

Millions of us will be end up shelling out more money for our insurance policies as a result of the rise in Insurance Premium Tax coming into force on 1st November.

A family with two cars, a pet and medical insurance is likely to pay almost £100 a year extra once the increase comes into effect, according to the Association of British Insurers (ABI).

What is Insurance Premium Tax?

Insurance Premium Tax is the tax that’s added to each insurance policy bought in the UK. At the moment we pay 6%, but from 1st November that’ll rise to 9.5%.

The ABI estimates that it the rise will affect 7.3 million car policies, 4.7 million household policies, 3 million pet policies and 3 million private medical insurance policies.

Insurance policies with a start date after 31st October will be charged IPT at the new rate. This adds:

  • Almost £13 to the average comprehensive motor insurance policy;
  • More than £10 on combined building and contents cover;
  • More than £10 on average pet insurance;
  • Over £40 on private medical insurance.

Life insurance and mortgage insurance are both exempt from the tax, while the higher Insurance Premium Tax rate of 20% still applies to travel insurance and warranties for some mechanical and electrical goods.

According to the Government, the IPT increase will bring in an extra £8.1 billion for the Treasury by 2021, the second largest revenue raiser in this year’s Summer Budget. The rise on 1st November is the fourth increase in standard rate since the tax was introduced in 1994.

Can you beat the rise?

If you have an insurance policy which is due for renewal within the first 12 days of November, you could be better off switching on 31st October before the rise comes into effect. Take exit fees and the cost of the remainder of the policy into account as well as the potentially losing a full year’s no claims bonus.

Have a look at our car insurance,and private medical insurance centres to get you started.

Beyond that, the usual best practice of getting a cheaper insurance policy applies. Don't ever accept your insurer's renewal offer - make sure that you shop around, only get as much cover as you need, and pay it all up front.

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