If you are wondering what precisely is Insurance Premium Tax? Here is a guide based on all that you need to know and what it means for you. This article will focus on:
- What Is Insurance Premium Tax?
- How To Calculate Insurance Premium Tax?
- How has IPT Expanded Over The Years?
- Reduce IPT Amount that I have to pay
What Is Insurance Premium Tax?
IPT is a tax for the insurers, similar to VAT, that applies to most UK insurance premiums or potential premiums. After your insurance supplier gets the premium from you, the tax is paid straightforwardly to the Government. Presently, IPT has two rates. The first is a standard 12% is charged on home, vehicle or pet insurance.
The second is higher comparatively of 20% and presently this part applies to the sort of insurance sold by providers of certain vehicles. For instance, you purchase another vehicle directly from a dealer. It applies to home appliances and travel insurance.
Insurance Premium Tax- How To Calculate?
The Government sets insurance premium tax which is determined as a percentage of your premium, which means the higher your premium expense, the more will be the tax.
- In the event that your yearly premium is £300, with 12% IPT, it will be £336. Or on the other hand at the higher pace of 20%, it will be £360.
- If your yearly premium is £600, with the 12% IPT, this will be £672. At 20%, it will be £720.
How has IPT Expanded Over The Years?
The higher rate became effective in 1997 to address VAT issues avoidance, where organisations selling insurance with different products could misleadingly lessen the cost of that thing and expand the expense of the insurance. The lower rate increased to 12%, however, the higher remained at 20%.
It is being considered for the Budget every year, and when the tax is changed by the Government, it will, in general, happen too rapidly.
Affects Of IPT Rise:
At the point when the Government rises the tax, insurance suppliers pass this to their clients.
In some cases, you see for a brief time frame after a rate rise is insurance organisations adequately decrease the premium cost so their clients don’t feel the increase in the tax. In any case, this decrease in premiums for the client, a similar level of tax must be paid to the Government by the providers.
Reasons To Pay IPT:
The insurance provider has to pass the tax once the client has paid the premium. No matter if it’s 12% or 20% on the collected premium, it has to reach directly to the government.
A few sorts of insurance are excluded from IPT, for example, life coverage, health care coverage, business crafts and ship insurance.
Reduce IPT Amount that I have to pay:
Assuming you need to lessen the tax you pay, you should see approaches to reduce your insurance premium. This could include:
- Fitting additional security provisions to your home or vehicle.
- Voluntary excess should be increased, however, keep in mind that you’ll be obligated for the additional expense in case you do have to claim.
- Paying your premium in one go instead of in regularly scheduled payments. This can lessen the general sum you pay during the year.
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To sum up the discussion on insurance premium tax, we can say that in the budget of the Government, the rates of IPT are set, however, they have also increased with the passing time. At the time when it was presented in 1994, the tax was simply 2.4%. In the course of recent years, a few changes have been made to the tax, it stays aware of industry growth, stays reasonable and eliminates avoidance opportunities.
Disclaimer: This article intends to provide general information on insurance premium tax.