The insurance premium tax (IPT) in the UK has reached a new high of £8.4 billion, according to national accountancy group UHY Hacker Young.
This figure represents a 13% increase from the previous record of £7.5 billion recorded in the year ending June 30.
The rise in IPT has coincided with increasing insurance premiums, such as for car insurance, adding to the financial burden on consumers. IPT is calculated as a percentage of premiums, so the tax amount rises as premiums increase.
The tax revenue from IPT has seen a substantial increase of 280% since the £3 billion collected in the 2013/14 fiscal year.
Neela Chauhan (pictured above), a partner at UHY Hacker Young, commented that IPT is a “stealth tax” that many policyholders may not be aware they are paying.
“Insurance is not a luxury, in fact for many people it's compulsory – if you own a car it is a legal requirement. If you have a mortgage then you must insure your property,” Chauhan said.
The accountancy group explained that IPT is often seen as an unseen component of premiums, particularly in compulsory policies like car and home insurance. The rates for IPT have increased significantly since the tax was introduced in 1994, when it was initially set at 2.5% of the premium.
Currently, the rate stands at 12%, with certain policies, such as travel insurance and domestic appliance coverage, attracting a 20% rate.
Chauhan added that the combination of rising premiums and the increasing number of policies taken out has contributed to the government's increased tax revenue from IPT.
The Association of British Insurers (ABI) reported that car insurance premiums were 25% higher in 2023 compared to the previous year. This increase in premiums, along with the IPT, has further strained household budgets.
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