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Insurance Premium Tax (UK)

Insurance Premium Tax (UK)

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Encyclopedia
Insurance premium tax is a tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

 on general insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...

 premiums within the United Kingdom.

Law


The main law relating to IPT is in the:
  • Finance Act
    Finance Act
    In the UK, the Chancellor of the Exchequer delivers an annual Budget speech on Budget Day, outlining changes in spending, as well as tax and duty. The changes to tax and duty are passed as law, and each year form the respective Finance Act...

     1994, sections 48-74 and Schedules 6A, 7 and 7A, as amended by the Finance Acts 1997, 1998 and 1999. This is the primary legislation, which establishes the principles of IPT.
  • Insurance Premium Tax Regulations 1994 (Statutory Instrument 1994/1774 - as amended) which gives more details about the operation of the tax.

Rates


There are two different insurance premium tax rates:
  • A standard rate of 6 per cent
  • A higher rate of 20 per cent


You must register and account for insurance premium tax if you are an insurer providing taxable insurance. You will also have to register and account for insurance premium tax if you are an intermediary selling insurance subject to the higher rate of insurance premium tax and you charge a separate insurance-related fee, over and above the insurance premium itself.

Rate change history

  • 1 October 1994 to 31 March 1997 - a single rate of 2.5 per cent


From 1 April 1997, two rates where charged.

Standard rate:
  • 1 April 1997 to 30 June 1999 - a standard rate of 4 per cent;
  • 1 July 1999 to date - a standard rate of 5 per cent.
  • From 4 January 2011, the standard rate rose to 6 per cent.


Higher rate:
  • 1 April 1997 to date a selective higher rate of 17.5 per cent on certain types of insurance arranged through certain suppliers of other goods and services
  • From 1 August 1998, the higher rate was extended to all taxable travel insurance, regardless of the type of supplier.
  • From 4 January 2011, the higher rate rose to 20 per cent, in line with VAT
    Vat
    Vat or VAT may refer to:* A type of container such as a barrel, storage tank, or tub, often constructed of welded sheet stainless steel, and used for holding, storing, and processing liquids such as milk, wine, and beer...

    .

Exemptions


All types of insurance risk located in the UK are taxable unless they are specifically exempted. Exemptions from this tax include:
  • Commercial aircraft insurance
  • Commercial ships and lifeboats insurance
  • Export finance
  • Insurance for risks outside the UK
  • Insurance on commercial goods in international transit
  • Insurance on international railway rolling stock
    Rolling stock
    Rolling stock comprises all the vehicles that move on a railway. It usually includes both powered and unpowered vehicles, for example locomotives, railroad cars, coaches and wagons...

  • "Long-term" insurance, including life insurance
    Life insurance
    Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger...

     and permanent health insurance
    Health insurance
    Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is...

    , but excluding medical insurance
  • Reinsurance
    Reinsurance
    Reinsurance is insurance that is purchased by an insurance company from another insurance company as a means of risk management...


See also

  • Financial services
    Financial services
    Financial services refer to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are credit unions, banks, credit card companies, insurance companies, consumer finance companies,...

     (broader industry to which insurance belongs)
  • Financial Services Authority
    Financial Services Authority
    The Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...

     (body that regulates financial services within the UK)
  • HM Revenue & CustomsCustoms.hmrcgov.uk
  • Insurance
    Insurance
    In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...

  • Tax
    Tax
    To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...