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IPT Increase From 10% to 12% on 1st June 2017

You may be aware that the government has increased the rate of Insurance Premium Tax ("IPT”) from 10.0% to 12.0% with effect from the 1st June 2017. This note explains the effect which this will have on the new ATE policies you purchase from 1st June onwards, and on existing policies.

Existing Policies

On previous occasions when the government has increased IPT, (the last increase was in October 2016) premiums on existing ATE policies were immediately affected and any premium paid after the date of the increase had to include IPT at the new higher rate.

There has however been lobbying by the insurance industry to avoid this unnecessary administration, and the government has now allowed a 12 month period of grace during which existing policies will not be subject to the IPT increase.

This means that for all existing ATE policy premiums (policies purchased on or before 31st May 2017) there will be no IPT increase and the premium will not change provided that the premium is paid within the next 12 months - by 31st May 2018.

Obviously in May 2018 there will still be some policy premiums outstanding, and IPT on them will then be payable at a higher rate, but many premiums will have been paid by then so far fewer policies will be affected. We will email you again in May 2018 in relation to pre 1st June 2017 policies which remain outstanding at that time.

New Policies

The underlying base premiums (ie. the premium excluding IPT) for all policies have not changed – only the government rate of IPT has altered. You can calculate the new premium for policies by dividing the existing IPT inclusive premium for each stage by 110 and then multiplying the result by 112.Solicitors will of course need to amend client care letters so that your new clients are advised of the correct new premium which will apply for all After the Event Insurance policies purchased after 31st May 2017.

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