Travel Insurance Premium Tax hits record levels

Travel Insurance Premium Tax has hit a record high of 20% from today (January 4).

Director at specialist travel broker P J Hayman & Company, Peter Hayman, called for a government review of the tax hike, warning it could put travellers off buying essential cover.

He said: “With effect from the 4th January 2011, the government will be collecting a 20% tax on all travel insurance premiums. The amount of tax matches the VAT rate but is far higher than other types of insurance such as motor and household, which have also seen an increase but only from 5% to 6%. Indeed, many people will not be aware that from a typical £20 premium, £3.33 is taken in tax.

“The higher rate was initially introduced in an attempt to deter travel agents from giving holiday discounts on the condition that travel insurance was purchased as part of a package. Sales through the travel trade currently represent less than one fifth of total premiums and therefore such a high level of tax is now an anachronism.

"There is a danger that this increase in travel insurance premiums will deter travellers from purchasing essential cover. In particular, those most affected are people who have to pay higher premiums due to age, ill health or deciding to take a gap year. We ask that the government puts this on its list of taxes for review as being unfair and inappropriate.”