You may not realise it, but every time you take out an insurance policy for your home, your health, your car or even a holiday abroad, you pay something called Insurance Premium Tax. As of June 1st 2017, Insurance Premium Tax rose from 10% to 12%, adding an extra 2% onto all the insurance premiums you currently pay. This means the tax has doubled in the last eighteen months, and with rising costs in other areas as a result of inflation, this increase is likely to hit homes and businesses hard.
A short history of Insurance Premium Tax
Insurance Premium Tax is a relatively new tax – it was introduced in 1994 at a single rate of 2.5% across the board. By 1999 it had been doubled to 5%, where it remained for twelve years at a steady rate. In 2011, the increase to 6% took many by surprise. By 2015, the government had brought the tax up to 9.5%, and in October 2016, it was raised to 10%, where it stayed until the most recent change by Chancellor George Osborne, in one of his last Budgets.
Who will be affected?
An increase in Insurance Premium Tax affects everyone who pays for any kind of insurance. Insurance products aren’t subject to VAT, to Insurance Premium Tax is the government’s replacement.
There are a few small exceptions to the new increase, including most long-term insurance plans, any reinsurance policies, insurance for commercial ships and aircraft, insurance for commercial goods in international transit, and premiums for risks which are located outside of the UK. But for all the most common types of insurance (vehicle, travel, home, landlord, professional indemnity and even pet), you’ll be liable to pay that extra 2%.
Households will be affected enormously. Statistics show that there are 20.1m households with contents insurance, 19.6m with motor insurance and a further 17m with buildings insurance. For homes with all three, this could add a huge amount onto regular insurance premiums. Many experts are concerned that this could lead to a rise in the number of people foregoing insurance, leaving themselves unprotected in the event of a disaster.
UK businesses will also be hit – some experts believe larger companies may be faced with increases of as much as £10,000 for their insurance.
What can I do about this increase?
In light of this increase, one of the best courses of action is to seek the very best deals on your insurance. It’s more important than ever to find a budget-friendly deal, to offset the increased amount of tax you’ll be paying on your premiums. At Morpheus Insurance, we offer a range of fantastic policies to keep your home and business protected. Get in touch today, and we’ll present you with a range of costed options for you to choose from.