Insurance is about to get more expensive

The Budget hiked a fairly obscure tax that few of us ever think about. Piper Terrett explains what it is, and how it could affect your insurance premiums.

When George Osborne pledged before the election that he wouldn't raise income tax, national insurance or VAT in the current parliament, it was obvious that he would be looking for more obscure taxes to raise. Hence the Budget saw him hiking a fairly obscure tax that few of us ever think about: insurance premium tax (IPT).

This tax was first introduced in 1994 by Kenneth Clarke to raise money from insurance policies, which are exempt from VAT. It is currently levied at a rate of 6% of the value of the premiums on a range of policies including contents, building, medical and motor insurance and even pet insurance, and raises £1.75bn a year for the Treasury.

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Piper Terrett is a financial journalist and author. Piper graduated from Newnham College, Cambridge, in 1997 and worked for Germaine Greer and for Adam Faith’s Money Channel before embarking on a career in business journalism. 

She has worked for most top financial titles, including Investors Chronicle, Shares magazine, Yahoo! Finance and MSN Money. She lectures part-time at London Metropolitan University and is the author of four books.