In his Summer Budget on 8th July, the Chancellor of the Exchequer announced a major change to the insurance industry, which will affect millions of households in the UK – but with just a couple of sentences in George Osborne’s speech dedicated to the tax, it’s possible you may have missed it.
The big change is an increase in insurance premium tax (IPT), a charge that is added to the cost of most types of insurance policy. As of November, the rate of insurance premium tax will increase from 6% to 9.5%.
Despite this translating to a tax increase of 58%, the official budget document highlighted the fact that IPT will remain much lower than many other countries, some of which have an insurance premium tax rate of 19%. Unfortunately, this doesn’t take into account our insurance prices are significantly higher in comparison. In fact, the UK already has the fourth most expensive average car insurance premiums in the world (behind the US, Austria and Germany).
Prices set to rise for more than 20 million UK households
Of the 26.7 million households in the UK, the British Insurance Brokers’ Association (BIBA) says the move will result in hikes for 20.1 million households with contents insurance, 19.6 million with motor insurance and 17 million with buildings insurance.
As the rise also applies to pet, mobile and private medical insurance, the pounds could quickly add up. The tax increase does not apply to travel insurance policies as they are already subject to IPT at a rate of 20%
Young drivers and non-standard homeowners face biggest price rise
Although the rate of insurance premium tax is the same for all policyholders as a percentage of their premium, this will have a significant impact for those with higher premiums. Experts warn that the tax increase will have a particular impact on young drivers and those living in ‘non-standard’ homes — those at a risk of flooding, for example.
With the average car insurance premium standing at £530.471 and combined buildings and contents cover typically costing £158.66, the rise in insurance premium tax means the average two-car household will pay out an extra £40.59 per year — and that’s not taking into account any other policies such as pet insurance or private health insurance.
For young drivers (aged 17-22) with an average car insurance premium of £1,207, the rise in insurance premium tax could translate to an extra £39.78 per year for each policy.
Rod Jones, insurance expert at uSwitch, said: “Raising insurance premium tax is another kick in the teeth for young drivers, who are already struggling to pay sky high premiums without the advantage of a no claims discount. It’s high time a flat rate tax system was introduced.”
With the rise in insurance premium tax just a few months away, it makes more sense than ever to shop around for the best price when you buy or renew insurance. Compare quotes with uSwitch to see if you could get a better deal on your car, home, health or life insurance:
1Average insurance costs taken from AA’s British Insurance Premium Index Q1 2015.