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How much is the insurance premium tax?" Though little known, the Insurance Premium Tax (IPT) has been a burden on the pocket of British consumer for many years. At the beginning of the 90s, the British authorities thought that the insurance industry was undertaxed because it was not liable to value added tax. Consequently, it introduced IPT, which works similar to value added tax, as it is added to the overall insurance policy cost.
By the time the levy began in 1994, the default IPT charge was fixed at 2.5%, but it was gradually rising to the 6% mark by early 2015. Aiming to raise an additional 8.1bn for the Treasury by 2021 - the amendment saw the default rate of duty raise to 9.5%.
Federal Chancellor George Osborne explained such increases with the fact that "the British insurance premium rate in many other jurisdictions is significantly lower than the rate". However, there was much controversy from the insurance sector when the British Insurance Brokers' Association (BIBA) described it as a "camouflage tax" for British homes. A few cautioned that it would discourage individuals from taking out insurance, possibly without having access to invaluable cover or even engaging in more illicit activities, such as an increase in the number of non-insured chauffeurs.
"No matter whether it's a statutory obligation or you want to buy additional coverage, the insurance is a financially secure net, not a luxury," said James Dalton of ABI. "Although the insurance industry is still one of the most highly competetive in the UK, its affordable nature cannot be taken for granted. However, it is not the only one. Avoid further rises in taxes if the insurance is to stay available to all.
" Which insurance is affected by the IPT default installment increase? Raising the IPT default set to 12% on 1 June 2017 covers a broad array of insurance services, including: There is also a levy on administrative fees charged on such contracts, so in the end the consumer could pay more for things like changes of addresses.
However, some classes of insurance are not affected as they are already subject to the higher 20% charge; for example, travellers' insurance, insurance for machinery and equipment and some types of car insurance. All other types of policy are expressly exempt from this taxation, which includes endowment insurance. Unfortunately, the increase in IPT has the greatest effect on many of those least able to pay for it - groups such as young riders who already have the highest premium to pay.
"This is why an increase in the premium will hit those who pay higher bonuses - such as young riders - harder. Although the fact that increasing the IPT rates over a period of years is likely to result in higher insurance rates cannot be avoided, there are a number of ways to minimize the effects.
Attempt to follow our top cash saver tip by looking for insurance coverage every times you need insurance to prevent the dangers of automatic renewals, and check out our insurance article for more help and instructions on reducing overhead. "Whilst the car insurance industry is very fiercely contested, insurance companies usually retain the best offers to win new businesses instead of rewarding current clients for renewal," Oliver said.