Increasing insurance costs lead to rise in amount of IPT collected

The government collected a total of £2.1bn in insurance premium tax during the third quarter of the current financial year, a new analysis of HMRC tax receipts data by actuarial consultancy OAC has revealed.

Published today (23 January 2024), the data showed that the latest IPT haul meant the tax has raised £6.1bn through the three quarters of the financial year to-date.

This was a 12% increase on the same period last year (£5.5bn).

IPT is a tax on the price of an insurance product and functions as an indirect tax on consumers and businesses that is collected by insurers and paid to HMRC.

The rise in the amount collected came following rises in insurance premiums due to economic headwinds.

Cara Spinks, head of insurance consulting at OAC, said: “Many people will have noticed their insurance premiums rising over the past year or so, as inflationary pressures increase cost for insurers across all sectors.

“While consumers are set to see another squeeze on their household finances, the Treasury looks set to haul in yet another bumper year of IPT receipts.

“Collections broke £6bn in 2021/22, £7bn in 2022/23 and could now surpass £8bn through this financial year.”

Calls for reduction

IPT applies to most general insurance policies including motor, home, pet and private medical insurance.

In 2023, the ABI called on the government to reduce the rate of IPT from 12%, stressing that it had been “increased rapidly”.

Biba also made similar calls in its 2024 manifesto, entitled Managing risk for growth and economic security.

Spinks said: “With the health of the nation and workforce at the heart of the government’s promise to drive up economic growth, the reduction or removal of IPT for health insurance products such as PMI and health cash plans could support this aim by reducing economic inactivity due to chronic illness while also easing the pressure on household finances.”