The Chancellor of the Exchequer Philip Hammond announced in his Autumn budget statement, tax on insurance is due to increase for the third time in just 2 years from June 2017. With insurance rates already under pressure to remain at a stable level, having increased by an average of £90 in the last year, the extra taxation of 2% will not be welcomed by policyholders, as the additional amount will be passed on to them, increasing the overall costs of products like Car Insurance, Home Insurance and Commercial Insurance. Over 50 million products will be affected as a result of this change. By 2021 the tax on Insurance is expected to make the Treasury over £8 billion.
Insurance Premium Tax was introduced in October 1994 at just 2.5%. Since then the tax has increased steadily to 10% in November 2015 and will be 12% from June 2017. Fears within the industry expect the Insurance tax to fall in line with VAT (20% at present) in the next few years.
The insurance community didn’t expect the tax rate to increase again so quickly and have aired their disappointment and have called the decision ‘Outrageous’. Some politicians have also expressed their frustration and have challenged the Chancellors thought process, especially with Brexit looming and increased fuels costs.