As predicted in our blog post a few weeks ago (Emergency Budget – Insurance Premium Tax on the Increase), Insurance Premium Tax (IPT) is being increased.
The increase is not as extreme as we thought but the current rate of 5% is being put up to 6% with effect from 4th January 2011. This means that for every £100 of insurance premium we pay, we will have to pay an extra pound of tax to the government.
A typical car insurance premium of £420 which consists of a £400 premium and £20 IPT will now go up to £424 being the same £400 premium but with £24 tax instead. A £4 increase may not sound a lot but this is only one insurance policy.
When you take into account all the insurance that you hold as an individual, family and/or business then the extra you are paying could be very considerable.
We are also seeing an increase in VAT from 17.5% to 20%. This rate is used as the tax rate on travel insurance policies so if you are taking out this cover then be prepared for a large jump in your premium when the new rates come in to effect.