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Heritage Insurance Business Panel Q&A: 3

Following last week’s UK Budget, Stuart Butler, Client Relationship Director at Heritage Insurance, reviews the effects of the change to Insurance Premium Tax in his latest Business Panel column in the Guernsey Press.

Question 3:

I see that Insurance Premium Tax (IPT) went up in the UK Budget last week. As a Guernsey resident, can I assume this doesn’t apply to me?

Stuart Butler replies:

This is a good question and one we are frequently asked by Guernsey residents, property owners, trust companies and others who own or manage properties and assets in the UK.

IPT is a tax charged on insurance premiums by the UK Government. It was brought in as ministers believed the insurance sector was insufficiently taxed because it wasn’t subject to VAT. The tax is simply added to the premium at the prevailing rate.

At the beginning of 2015 the rate was 6%, which increased to 9.5% on 1 November 2015 and, as you mention, increased again in the Budget, to 10%. This additional 0.5% is to be ring fenced to assist with the flood problems in the UK, e.g. towards flood defences.

Many policyholders think because they are Guernsey resident and don’t live in the UK or they have a trust that owns a UK property that they don’t need to pay IPT. However, IPT is not based upon where you live or the company is registered but where the property or asset is located.

So, unfortunately, if you live in Guernsey and have a second home, a buy-to-let or any other asset in the UK you have to pay IPT and you cannot avoid it.

The Association of British Insurers (ABI) estimated last October that a family with two cars, a pet and medical insurance would likely have to pay almost £100 a year more as a result of the November 2015 rate rise and this amount will of course have increased further with the Budget announcement.

Fortunately, however, insurance in Guernsey is not subject to IPT.

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