- More than 4 in 5 UK households affected by insurance premium tax
- Insurance companies are charged, but they then pass the cost on to customers.
- Jeremy Hunt is now being asked to cut it in the spring budget.
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More than four in five UK households are paying more for insurance because of a tax “hidden in plain sight” – but most don’t even know what it is, data shows.
Tax on insurance premiums causes people to pay an average of £67 extra a year for their car insurance, research by the Association of British Insurers shows.
The ABI, which is calling on the Chancellor to reduce the tax ahead of the Spring Budget, said its research revealed that 67 per cent of people said they had little or no knowledge about the IPT, while half had no idea about How the tax affects your insurance. costs.
Get rid of it: ABI calls on UK Chancellor Jeremy Hunt to reduce insurance premium tax in his upcoming spring budget.
The tariff cannot be easily avoided as it applies to general insurance policies covering motor, home, pet, travel and private health insurance.
Having been applied at a rate of 2.5 percent in 1994, the tariff has risen steadily since then, reaching six percent in 2011, before rising to 10 percent in 2016 and 12 percent in 2017.
Those who have many different types of insurance policies could face an extra bill of £264.
Initially, the tax is levied on insurers, but this cost is usually passed on, at least in large part, to those who pay for an insurance policy.
Overall, IPT is expected to generate more than £8 billion for the UK government this financial year, an increase of more than 10 per cent on the previous year.
So far this financial year, up to the end of January 2024, the IPT has raised £6.7 billion, while alcohol taxes have generated £6.8 billion over the same period.
Tobacco and gambling have brought the Government £7.3 billion and £2.3 billion respectively.
The ABI has created a mascot, Snippy, as part of its campaign for an IPT cut, which it says will help “unmask” the tax.
“It is time to unmask this tax that penalizes people and companies for being responsible,” said ABI director of general insurance policies, Mervyn Skeet.
“This tax hits the poorest hardest because they typically spend more on insurance, such as home and auto coverage, as a proportion of their income.”
As a result of the tax, ABI said one in five insurance customers are reducing their level of cover by removing optional extras to reduce their bill.
“Insurers are doing everything they can to offer insurance at competitive prices, despite facing substantial cost increases beyond their control,” Skeet added.
“It has never been a better time for the Government to show its support for the millions of homeowners and businesses who are doing the right thing by protecting their families and livelihoods against sudden financial crises, than to reduce the insurance premium tax “.
For those looking to reduce their insurance bill and IPT payments, one way to do this is to improve the security of your home or car to reduce your insurance premium and therefore the amount you pay in IPT.
Similarly, increasing your voluntary excess will also reduce your premium, but would affect your liability if you need to make a claim.
A spokesperson for the Association of British Insurers said: “Despite insurers battling some sustained cost pressures, motor and home insurance remains competitive so it can pay to shop around to get the best deal.” .
“When comparing prices, always make sure you buy the right policy for your needs, which may not be the cheapest.”